A well-traveled internet myth is that short sales are “better” on your credit than foreclosures. It’s not really true that short sales are softer on your credit than foreclosures. A short sale can be nearly as bad as a foreclosure on ones credit, depending on the circumstances.
After a short sale closing I had last month, my client suffered what I consider to be minimal credit damage. We closed on the short sale of the client’s condo in Arlington Heights and he was three months behind on his mortgage payments. His credit was 780 before the short sale.
Last week, after the short sale, he checked his credit again and it was 680. So, it dropped 100 points, which isn’t too bad.
There was no foreclosure filed in this case and the short sale included a release of deficiency, so it was really close to the best of all circumstances (except that he was three month behind on the mortgage). His credit score was eerily close to the credit score predicted in this post for “Consumer C” which leads me to believe that the information in the chart shown there is pretty close to reality.
The client will be prohibited from getting a mortgage for at least two years, but with a 680 credit score he can get an FHA 3.5% down mortgage easily after the two years pass.