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Credit Score And Short Sale Face Off

Author : Ask Bill

Your credit history may have a huge impact on almost anything you decide to do financially. It may affect the interest rates including the terms and conditions should you apply for a loan and it may affect the approval of your loan application as a whole. In turn there are many factors that may affect your credit report as well. Late payments, mortgage defaults, bankruptcy and foreclosure may affect your finances in many more ways than you might think is possible. One aspect you may want to consider is the relationship between your credit score and short sale.
In general, a short sale may be conducted if your home is worth less than what you owe your mortgage provider and you can no longer afford to complete the payment. For example, let’s say you owe your lender $300,000 in mortgage and the current value of your home is only $200,000. At the same time, due to some unlucky circumstances you find that you are unable to make due payments on your mortgage. Rather than letting your mortgage provider seize your home, you may call them to tell them that you can no longer afford the payments on your mortgage and that you wish to sell your home at a value less than what you owe them. In essence, your creditor stands to lose a portion of what is owed to them. However, many creditors prefer a short sale to seizing your assets so they may be likely to approve your request rather than deny it. You may want to remember that credit score and short sale have a direct relationship with each other so a short sale on your home may have a huge impact on your credit score.
Of course you cannot simply make the decision to sell your house at low value out of the blue. Your creditor may request proof that you are indeed unable to continue making payments on your home. Between foreclosure and short sale your creditor may be more likely to choose short sale because the cost they may incur should they foreclose may be considerably higher than if they were to let you sell your home at an amount that is less than what is owed to them. You may wonder if your credit score will be damaged more by a short sale or by foreclosure. According to Fair Isaac Corporation, credit scores are generally affected the same way either way. So it may not really matter whether you opt to let the bank foreclose or to organize a short sale if your only concern is your credit score.
However, credit scores may not be the only aspect that you may want to consider when going for a short sale. If you let a bank foreclose you may actually lose your home to your bank but if you decide to go for a short sale, you may be able to pay off your mortgage; albeit at a reduced amount. After all, the social and financial stigma of the “F” word may be on your record for a few years so you may want to avoid that at all costs. You may also be in control of the sale instead of the bank and you at least know to whom you are selling your home.
There may be a few things you might want to check through before putting your home up for a short sale. It may be prudent for you to verify the actual value of your home by having it appraised by professionals. Who knows, you might actually be able to sell it for slightly higher than the current market price. You may also want to have a meeting with your creditor to work out the process of having a short sale including all the necessary documentation or concessions for the transaction to take place.
You may not have to worry as much if you opt for a short sale because you may not have to go through a long waiting period before you might be eligible to purchase a new home as compared to having the bank foreclose your property. However, it may always be best for you to go through as many options as you can to help you pay your mortgage before resorting to a short sale.

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Tags:   credit score and short sale, foreclosure and short sale, foreclosure

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Submitted : 2010-10-13    Word Count : 725    Times Viewed: 437