Before a homeowner decides to sell their home as a short sale, it is important to consider the credit implications of this option. A consumer’s credit report and credit score may dictate the interest rates offered on loans and credit cards, being hired for a job or even the type of home that an individual can purchase.
Today’s world is becoming increasingly credit-dependent, so sellers must carefully weigh their options and how those options will affect their credit before making the final decision. To help sellers make the right choice, the following is a guide to the credit implications of going through the shortsale process.
How Short Sales are Reported
A short sale will affect a seller’s credit report, so it is essential to understand how short sales are supported. Shortsales do appear on credit reports for some time. In most cases, they will be noted on a borrower’s credit report for five to seven years. However, the exact wording of this report can vary, depending on your lender.
Certain lenders report the mortgage loan as being “paid settled.” This is one of the smallest credit implications of a short sale and will do the least damage to your credit. Some lenders will report the mortgage as being “unrated,” which is not optimal, but it will not do as much damage to your credit as a foreclosure.
In other cases, lenders may report that the mortgage was a “pre-foreclosure in redemption.” This can occur if the home was already at risk for a foreclosure when the sale was closed. It is this wording on your credit report that may be viewed in a more negative light by lenders in the future. If this is the wording used, it is nearly as bad as a foreclosure going on a seller’s credit report.