Protecting Your Financial Future
If keeping your home is no longer possible, how you exit the property dictates how quickly your financial life can recover.
Two of the most common alternatives to a traditional sale are a Short Sale and a Foreclosure. While both impact your credit score, the long-term consequences are drastically different.
The Credit Score Drop
A completed foreclosure is one of the most severe derogatory marks possible, often dropping a credit score by 100 to 160 points. A short sale will also lower your score (typically by 70 to 120 points) because you are settling a debt for less than owed, but the hit is less catastrophic.
Buying Your Next Home
This is where the difference truly matters. Fannie Mae guidelines generally force you to wait seven years after a foreclosure before you can qualify for a standard conventional mortgage again. With a short sale, that waiting period is typically reduced to just two to four years.
The Public Stigma
Foreclosures are public records. They appear on background checks for employment and can severely impact your ability to rent a standard apartment. A short sale is simply recorded as a "settled debt" or "paid for less than the full balance," which carries significantly less stigma for future landlords and employers.