short saleWhen trying to decide between a short sale and a foreclosure, there are often certain advantages that cause people to choose a short sale. In a short sale, for example, the waiting period between buying another house is two years, instead of the five to seven year waiting period that occurs after a foreclosure. But one question that people ask is how will a short sale impact your credit?

Short sales are when a mortgage lender agrees to accept less than the amount owed against the home. Short sales are becoming more and more common as an alternative to foreclosure, and lenders who previously never considered them, now often have departments dedicated to working with real estate agents and lawyers, making the short sale process go more smoothly.

Most reports indicate that a short sale and a foreclosure can have the same impact on your credit report. Personal situations can vary, though, and there is no hard and fast rule for how many points your FICO score will fall. What really impacts your credit score are late payments on the mortgage, not necessarily the short sale.

If the reason you are considering a short sale is because you are in the pre-foreclosure stages, and have been late on your mortgage payment, it will probably still have a negative impact on your credit report.

The key difference is the waiting period between a short sale and being able to get a loan to purchase a new home. It can take up to five – seven years to get a new loan for a home with reasonable interest rates. However, the FHA adopted guidelines in 2010 that says a seller who is current, and does a short sale, can qualify immediately to purchase another home.

In general, it isn’t always that quick. However, many mortgage lenders will approve someone for a new loan within two years, which is a significantly shorter waiting period.

If you are trying to decide between foreclosure and a short sale, protecting your credit score might not necessarily be a deciding factor. But, being able to purchase a new home within two years can help you rebuild your credit a lot faster. It is always wise to consult with a lawyer and a financial planner before making these types of decisions.

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