Making The Best Choice For Your Credit History: Foreclosure vs. Short Sale

It is important to make the right decision in financial matters, especially when your credit history will take an immediate hit if you make the wrong one. If you are in a position of deciding between selling your home as a short sale or letting it go into foreclosure, it is critical to be aware of the differences of how either one could effect your credit.

There's Help to Prevent Foreclosure

In either case, you should examine available alternatives to spare your home and your credit. The State of Maryland is proactive about preventing future foreclosure; before making a decision check out foreclosure counseling services in Montgomery County or contact the Homeownership Preservation Foundation by telephone at 888-995-HOPE or at its website at www.995hope.org.

Maryland Governor O'Malley has launched the HOPE Initiative -- Home Owners Preserving Equity. HOPE provides access to counseling services and resources for homeowners needing to refinance. Call 1-877-462-7555 or visit www.mdhope.org for links to foreclosure counseling services.

If You Have to Make a Tough Choice...

If you home's value is less than an outstanding mortgage loan, a lender may authorize a short sale by accepting less than the amount owed. Considering the expense and the length of time involved in a foreclosure, lenders often make the decision to approve short sales. Recent revisions to Obama's Making Home Affordable program offer incentives to lenders who agree to short sales.

Both a foreclosure and a short sale will impact your credit score negatively. However, a homeowner who sells their home by a short sale will have a shorter period to credit-score recovery.

Once a short sale is completed your credit score could potentially drop 80 to 100 points. The rebound time for a credit score after a short sale is about 18 months. This is considered quick compared to the inability to get a new mortgage for three years after a foreclosure. Also, there is the 200-300 point credit score decline involved in a foreclosure.

If you are looking to purchase a home in the Montgomery County, you have other credit concerns we will discuss in a future blog. If you are ready to buy or have questions or concerns about today's real estate market, Courtney Griffiths can help you with all of your needs.