A strategic short sale happens when a homeowner voluntarily sells their home for less than the mortgage owed to avoid foreclosure. This option can help homeowners escape the financial and legal burdens of foreclosure.
However, it’s important to understand how a short sale can affect your credit and future home-buying opportunities.
Impact on credit score
A short sale will negatively impact a homeowner’s credit score, though typically not as severely as a foreclosure. Credit scores can drop by 100 to 150 points, depending on the individual’s financial history. This drop occurs because lenders report the short sale as “settled for less than the full amount.”
While this is better than a foreclosure, the negative mark can remain on the credit report for up to seven years.
Recovery and future home-buying
Although a short sale damages credit, recovery is possible with careful financial management. Homeowners can rebuild their credit by paying bills on time, reducing debt, and avoiding new credit applications. The ability to buy a new home after a short sale varies depending on the lender and the homeowner’s financial recovery.
Generally, lenders may require a waiting period of two to three years before approving a new mortgage. This period can be shorter if the homeowner had no late payments leading up to the short sale.
Legal considerations
In Florida, homeowners considering a short sale should consult with a real estate attorney. The attorney can help navigate the process, negotiate with lenders, and ensure that the homeowner isn’t held liable for the remaining mortgage balance. This protection can help prevent future financial issues and ease the transition to new homeownership.
A strategic short sale can provide relief from financial distress, but understanding its long-term impact is necessary for making informed decisions about future homeownership.
