How Long Does a Short Sale Stay on Your Credit Report and How Bad Does It Hurt It?

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Even though the information on this web page is provided by a qualified industry expert, it should not be considered as legal, tax, financial or investment advice. Since every individual’s situation is unique, a qualified professional should be consulted before making financial decisions.


In this guide I will tell you everything you need to know about how a short sale affects your credit report. We will discuss:

  • how bad a short sale’s negative effect is for your credit
  • how long a short sale stays on your credit report
  • how and when you can remove the short sale from your credit report
  • when you can buy a home again after a short sale
  • refinancing after a short sale
  • if any other options hurt your credit less than a short sale.

In fact, I answer these questions almost on a daily basis when consulting my clients whom I help negotiate and process their short sales.

Note: if you are also interested in other articles about how a short sale works for the seller, you are welcome to read my other guides:

Now, let’s start with the most important question.


Does a Short Sale Hurt or Completely Ruin Your Credit?

Let’s start with a short video from our general Short Sale Guide explaining how a short sale affects the credit.

Before deciding to do a short sale, it is highly advised that the seller contacts a licensed credit professional to discuss the potential implications.

Let’s debunk the myth that a short sale has zero effect on your credit.

Despite what many people believe or choose to sell to the public, a short sale absolutely has a negative effect on your credit, after you successfully complete the transaction.

However, your credit is far from “ruined” or diminished. In fact, the negative drop in credit score from a short sale is far less than the results from a foreclosure. So, to answer the question above, a short sale hurts your credit score, but does not completely ruin it.

The exact decrease in points will depend on how high or low your score is, prior to the short sale. For example, if your score was in the 750-850 range, a drop of around 120-150 points may be likely. However, if your credit score was in the 650-700 range, you may experience a decrease of around 60-100 points.

To put an exact figure on it is impossible and can only be determined on a case by case basis. However, using the “high-low” principle above will allow you to enter into the short sale with a good base of knowledge and understanding of the risks.


How Long Does a Short Sale Affect Your Credit?

Here is another video from the guide mentioned above.

A short sale can stay on your credit for an estimated 3-7 years. The range will depend on numerous factors, including your immediate action steps, whether or not you seek help from a credit professional, and your current debt-to-income ratio.

Regarding being able to purchase another property, you may be able to afterwards. The type of loan you’d like to get after the short sale will determine the amount of time you’ll have to wait.

Some FHA loan products will allow you to get a loan 2-4 years after the short sale. In these situations, you’ll be required to write a letter of explanation to the lender, describing exactly why you fell behind on your mortgage payments. If you can do a good job of proving that it was a short-term hardship, the lender will likely grant you the loan.

Some common examples of short term hardships can be job loss, temporary illness, divorce, and other types of happenings in which you can convey to the bank that it was a minor slip up and you have now gotten past it.


Can I Remove a Short Sale From My Credit Report Sooner?

Once a short sale is completed, the next thing that will likely be on your mind is to remove it from your credit report ASAP!

Unfortunately there is no magic “credit” wand that exists. You’ll have to rely on good old fashion persistence and hard work.

You may start with researching reputable credit repair agencies. If possible, narrow it down to at least 3.

Then, you’ll want to call the companies and interview them, in order to determine which is a good fit, trustworthy, and affordable.

While removing the blotch on your credit report overnight won’t be possible, you can still get it done quickly, by being proactive in hiring a credit repair company and staying consistent with your efforts of eliminating the item.

Another option is doing all the credit repair work yourself or with the help of a non-profit credit counseling agency. This includes sending requests to your lender to confirm information,
disputing errors in your credit history, and other similar actions.


After a Short Sale, when Can I Buy Again?

As mentioned above, some FHA loans can be given to you in just 2-4 years after a short sale. However, buying a home after a short sale is a big decision. So, it’s important to know what other factors to consider.

After a short sale, the longer you wait to buy a home, the better. Here’s why:

As time passes and you stay proactive and persistent in rectifying your credit, the likelihood of becoming a “good” borrower in the lender’s eyes increases. You’ll have more time to save up money for a down payment, as well as prove to the lender that what happened in the past was a short-term hick-up.

If you should choose to purchase a property soon after the short sale, this can be possible, depending on the type of loan. As mentioned above, certain lenders and loan products will grant you the right to purchase again, given the conditions.

However, you must be aware that if you are going to attempt to buy a house in the immediate aftermath of performing a short sale, the lender may consider you to be a high-risk borrower. Being a risky borrower likely means higher interest rates, as well as other unfavorable loan terms.


Can I Refinance After a Short Sale?

Refinancing your mortgage when you’re in default is not possible. Lenders have strict rules against this. Your mortgage must be in good standing, in order to do a refinance. In addition, you must have equity in your home.

Refinancing after a short sale is a different story. This situation follows the same principles as purchasing a property and getting a loan. Let’s take a look at this example:

You sold your property a few years back through a short sale. After purchasing a new home, you have a bunch of equity, interest rates are low, and you would like to refinance. In order to refinance, the lender will review your current mortgage payment history, as well as review the details of your past hardship.


Is There a Better Alternative to a Short Sale?

If your main goal is to sell the home in order to get out of your current situation, then it’s unlikely there is a better alternative to a short sale.

Filing for bankruptcy is an option, but a very time consuming and expensive one. Most bankruptcy attorneys will demand a deposit payment up front, then another when it is filed. Bankruptcy solves the short term issue of the bank coming after you, but runs the risk of creating even a bigger and longer term damage to your credit report and dragging you deeper in debt.

Deed in lieu of foreclosure is an option only offered in certain situations, by some lenders. Most lenders view these types of transactions as risky, due to the influx of lawsuits by borrowers against creditors. If you’re lucky enough to have the lender offer this option, it may not be much better for your credit report than a foreclosure, and definitely worse than a short sale.

A loan modification will not solve your issue of selling the problem property. It is important to understand the multiple risks such as:

  • there is no guarantee your payments will be lower or your terms improved
  • a large majority of loan modification applications end up getting declined
  • you assume the risk of not being able to make the payments if it does get approved

Foreclosure speaks for itself. Letting the bank take the property results in a massive hit to your credit, poor financial standing with future lenders, lack of control, etc.

Therefore, in terms of credit damage, in most cases a short sale is the least risky and damaging option for the credit.


Can a Bank Foreclose Right During a Short Sale Process?

Although a short sale is the best option in most situations, to enjoy all its benefits, it should be completed successfully, in the first place. If not being processed correctly, the bank can foreclose during the short sale process. This is pretty bureaucratic and difficult for a regular realtor or a homeowner to complete efficiently.

In order to put yourself in the best situation possible, it is highly recommended that you find a short sale processor. There are processors whose services are completely free for the seller, because they get compensated from the buyer of the property.

If you are considering short selling your home with the free help of a reputable short sale processing company, fill out this form to get connected with a reliable professional in your location.

Short sale processors facilitate the entire short sale for you, from start-to-finish. This includes, but is not limited to:

  • helping to complete documentation
  • passing the mortgage assistance package back and forth
  • gathering financial supporting documents
  • being the direct contact for the lender, etc.

A good short sale processing company will help greatly, by getting you from point A to point Z correctly and more efficiently. Processors are able to do this, because they have specific systems in place that are designed to navigate the short sale process.

A realtor may also assure you that they are experienced in closing short sale transactions because they’ve had a few during their career. But being “experienced” in short sale transactions simply is not good enough. You’ll need to be sure to work with someone who designed their entire business around processing short sales.

About the Author
Bob Vieira | Short Sale Specialist

Bob Vieira is the Founder and Managing Partner of Universal Short Sales, LLC. While serving clients as a licensed Realtor, he realized there was a need for a knowledgeable company, specializing in the short sale sector. Bob is an industry expert with a passion for guiding homeowners through the short sale process.

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