How to Protect FICO Score During Short Sale
Your FICO score is what lenders look at when determining whether to give you credit and at what interest rate. Although foreclosure can lower your score 200 to 300 points for as long as 10 years, a short sale averages just 75 to 125 points for two years or less. While there's not a way to ensure that your score won't be dropped at all, there are several actions you can take to soften the impact.
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Talk to your lender before you start the short sale process to let the company know what is going on and why you feel the need to do a short sale. A foreclosure is an expensive and lengthy process for the leader, so it may be more willing to accommodate you than you think. However, the lender is not going to just accept it on good faith, you will need to produce a hardship letter, proof of your income and assets, as well as have all of your bank statements and other financial information ready for the lender to go through.
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Stay current on your payments even as you are going through the short sale. It may seem tempting to fall behind, after all you're already losing the house without taking a profit, but if you are able to continue making payments until the sale has gone through, the impact the short sale will have on your score will be at its lowest, sometimes dropping as little as 50 points for just 12 to 18 months. Only late and nonpayments will show up on your credit report.
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Hire a lawyer. Attorneys who specialize in short sales are going to be able to foresee potential problems down the road, while a real estate agent is probably only thinking about what's necessary to close the deal. For example, if you have two mortgages, it will most likely be your first lender who will get paid first, often leaving the second lender with little to nothing. Your second lender could then report and sue you for nonpayment, not only taking down your FICO score, but ensuring this will not be an event soon forgotten.
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