How Does a Short Sale Impact Your Credit Score? | Restore Your Credit
Today's question is, how does a short sale impact your credit score?
We'll be discussing a number of issues related to how a short sale, or a foreclosure, will impact your credit score and how to best restore your credit following such an event.
Now, following a short sale transaction, you're looking at about a three to four-year cooling off period before you're once again eligible to borrow federally backed funds to finance the purchase of a new home.
What do I mean by federally backed funds?
What I mean is government-sponsored enterprise money, government-backed loans like Fannie Mae or Freddie Mac. These funds are available to homeowners to help them finance the purchase of a new home. Whereas following a foreclosure, you're looking at a significantly longer cooling off period, more like five to seven years before you're even eligible to borrow these types of federally backed loans to help you finance the purchase of a new home.
Now you want to make sure you take full advantage and use this opportunity to restore and repair your credit using sound credit practices and responsible use of your existing credit. And before you know it, after a short period of time, you'll once again be in a position to borrow money in the not so distant future.
So the short sale isn't only more beneficial within the context of borrowing larger sums of money to finance a new house.
It's also more beneficial when we're talking about smaller creditors. So a smaller lender or a smaller creditor will also look more favorably upon a short sale versus a foreclosure when deciding whether or not to loan you money, let's say within the context of a department store credit, personal loan, or even a car loan.
Now what about renting?
People always ask me, "Lambros, following a short sale, will I be able to rent a place?" And the bottom line is, a perspective landlord or property management company will certainly look more favorably upon a short sale as opposed to a foreclosure.
A short sale demonstrates that you took initiative, that you took the responsible course of action, and that you, at the very least, attempted to settle the debt to the best of your abilities as opposed to a foreclosure where you simply threw your hands up and walked away.
So that being said, it shouldn't be terribly too difficult for you to rent a place following a short sale, especially if you provide a letter of explanation detailing the circumstances of your short sale, as well as an additional deposit or possibly even an additional month's rent.
You know what they say, "Cash on the barrel really moves mountains."
Those were just a few of the important points that I wanted to share with you today regarding the short sale's impact on one's credit score. If you have any more questions or concerns, I'm happy to help.