Short Sale Versus Foreclosure - How Does it Affect Your Credit?

A short sale or pre-foreclosure sale involves the sale of a property by the borrower to a third party for less than the total amount necessary to satisfy the delinquent mortgage obligation, as agreed to by the lender, investor and mortgage insurer.

This will show on the credit report as a comment to the reporting of delinquency and will typically be reflected as "Paid in Full Less Than Full Balance" or as a "Deficient Payoff/Settlement."


When no Mortgage Insurance is required (typically when 20% is being put down): A 2-year elapsed time period is required for re-establishing credit following completion of the short sale or pre-foreclosure action.


When Mortgage Insurance is required (typicall when less than 20% is being put down): A 4-year elapsed time period is required for re-establishing credit following completion of the short sale or pre-foreclosure action. FHA will allow three years from release for short sales and foreclosures.


So now you may be wondering—What About a Foreclosure?


5 years from the completion date


Additional requirements that apply after 5 years up to 7 years following the completion date:

· Purchases must be a primary residence with a minimum 10% down payment and a minimum 680 representative credit score. Purchase of a second home or investment property is not permitted

· Limited cash-out refinances are permitted for all occupancy types

· Cash-out refinances are not permitted for any occupancy type


Extenuating circumstances: 3 years from completion date


Additional requirements that apply after 3 years up to 7 years following the completion date:

· The purchase of a primary residence is permitted with a minimum 10% down payment

· Purchase of a second home or investment property is not permitted

· Limited cash-out refinances are permitted for all occupancy types .

· Cash-out refinances are not permitted for any occupancy type



courtesy of Adrienne Austin, Coldwell Banker Mortgage