There seems to be difference of opinions as to the effect that short sale and foreclosure have on the credit score of homeowners.
On my recent attendance at the NAHREP (National Hispanic Real Estate Professional) national Conference, which focused on housing trends and policies affecting the Hispanic population , the topic of homeownership following a short sale or foreclosure attracted many real estate professionals as they upgrade their training to better inform their clients.
When I started receiving my training in short sale in 2,009, the consensus was that the short sale only lowered 50 to 100 points in their FICO score. Nothing could be further from the truth as homeowners succesfully concluding short sale and /or losing thru foreclosures experience drop as much as 160 points.
For example, for those homeowners whose pre-short sale/foreclosure were in the 600-650, the drop is between 85 to 105 whereas those in the 700 + FICO score, the drop could be as high as 140 to 160 points. Thus, the higher the score, the higher the impact on one's credit score. Furthermore, the severity will be more pronoinced if you are behind other payments besides your mortgage payments such as credit card, student loans, car loans, and so on.
The difference in credit score drop between short sale and foreclosure is only 35 to 55 points contrary to popular beliefs. Bankruptcy (Chap. 7 and Chap. 13) damage to credit score was more severe. Those in the 600s score, the drop was between 130 to 150 whereas the drop to those with 700 + FICO score, the average drop was 220 to 240 points.
On my next posting, I will try to incorporate graphs that were featured at the conference and which will be made available soon.
My advise for homeowners facing foreclosure is that you need to know in advance what are the consequences to your credit score as you contemplate the different options. In short, there is very little difference between short sale and foreclsoure and if the real estate agents advise to the contrary, either they are not being honest or they are misinformed on short sale. You make the choice. After all you are the person who will be affected by your decision. My intention after all is to empower you with the correct information and practical knowledge to help you to repair and rebuild your credit after a short sale or foreclosure.
I will inform you about the waiting periods to qualify for another loan after short sale and/or foreclosure. Depending on the type of loans, there are big differences.
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