Losing your house for whatever reason is not an easy event to go through in life. It gets even harder not knowing if your fate will end with a foreclosure or short sale. What happens after that? Your credit score will take a hit, you know that. Here is what to expect in both situations.
Foreclosure or Short Sale? Which is Worse?
In terms of the impact on your credit score, they’re about the same. A foreclosure or a short sale will hit your score about 100 to 150 points. If you are able to negotiate a short sale without ever being late on your mortgage – which is extremely rare – it’s only about 10 to 20 points off your score. Although that hardly has an impact, it shows that the late payments are what will kill you.
Another aspect to consider between foreclosure and short sale is the waiting period for when they come off your credit report, which is a different consideration than your credit score. This all depends on the loan you’re getting. For an FHA loan, there’s no difference between the two: they’re both 3 years. Both stay on your report for seven years from the date the first delinquency is reported. Not the date of the foreclosure, but the date of the first delinquency.
One more thing to consider is deficiency balance. A deficiency balance is the difference between what you owed on the loan and what you got from the sale of the house. That deficiency balance is something you want to consider. Typically, in a short sale, part of the negotiation is that the deficiency balance is forgiven, or the short sale is a new agreement that your realtor negotiates. In most of the short sales, everybody gets that.
Foreclosures are a different story (depending on the state you’re in). In many states, the bank can go after you for the deficiency between what they get at the auction and what you owed on your mortgage. However, there are many states out there, like Arizona for example, that are anti-deficiency states, meaning they can’t go after you for that. In fact, they can’t even report that deficiency balance on your credit report. An anti-deficiency balance means the bank chose to foreclose and therefore waived the right to sue you for the deficiency balance.
Do you have any questions regarding foreclosure or short sale? Let us know.
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We have fixed price programs that get you back on track in as little as 5 months, debt resolution solutions, programs geared toward people who have had recent short sales or foreclosures and many others. Help is just a free phone call away, or you can fill out an appointment request. Contact Go Clean Credit to schedule a free consultation today.