How Short Sale Affects Your Credit Score

The question of whether or not to go forward with a foreclosure or a short sale is one that most of us hope we won’t have to ask ourselves, but inevitably is a reality for many. In real estate, a homeowner will go through with a short sale when they are experiencing financial hardship in an effort to avoid foreclosure. 

Start lowering your debt today.

Call 800-449-0273.

A short sale is when a homeowner sells their house for less than what they owe on their mortgage. A lot of times, people opt for a short sale over a foreclosure because a short sale allows the buyer to get back into the real estate market within two or three years. However, it’s not guaranteed that your lender will consent to a short sale. Certain states even have laws that allow lenders to request that the homeowner pay the remaining balance once a buyer purchases the home. 

If your lender agrees to a short sale, it could be a good option for you if you are struggling to pay your mortgage, but how does it affect your credit?

In the below sections, we will discuss short sales in relation to your credit. 

What is a short sale?

A short sale, otherwise known as a pre-foreclosure sale, is when a homeowner sells their home for less than what they owe due to financial hardship in an effort to avoid foreclosure.
The money that is made off of selling the house to a buyer is then given to the lender as a method of paying them off. You, the homeowner, would not pocket any of the money made off of the house. 

However, short sales are not just a go-to option for anyone who can’t or doesn’t want to make payments on their mortgage anymore. It’s a little bit more complicated than that.
For instance, your lender doesn’t
have to agree to a short sale.  If you find that you are struggling to make ends meet, consider talking to your lender first about loan modification. See if there are any options for lower payments or temporary freezes while you get back on your feet. 

If you are in a more serious or urgent situation, then maybe it’s time to consider a short sale before your home is foreclosed. 

If you are planning on seeking out a short sale, here are some things to have prepared before you talk to the mortgage company:

  • Mortgage statements.
  • All of the monthly debts you owe (credit card debt, student loan payments, car payments, etc.)
  • Pay stubs from your most recent pay period. 
  • Tax returns from the previous two years. 
  • Settlement statement.
  • Bank statements.

Keep in mind that these are just the basics, and your lender might ask you for additional documents.
buy singulair online no prescription
If your lender agrees to a short sale, it is strongly advised that you seek out a real estate agent who has some experience in short sales under their belt, as they differ from traditional sales. 

You might also want to consult with an experienced lawyer and an accountant to help guide you through the short sale process. It’s important to keep in mind that your lender might decide that they will make more money from a foreclosure than they will on a short sale. In this case, they have the right to deny your request for a short sale.

Pros and cons of short sales

Short sales are generally healthier for your credit than a foreclosure would be, but obviously a process like this doesn’t come free of drawbacks. Here are some of the pros and cons of a short sale:


  • It’s a way to help you avoid foreclosing: This is perhaps the most valued benefit of a short sale. Keep in mind, though, that a foreclosure can still happen during the process of a short sale. For this reason, it’s really important to stay on top of all the details and paperwork throughout the process, including making sure your home is ready for a potential buyer. 
  • It can be faster than a foreclosure: Sometimes, foreclosures can take up to two years before the process is completed. This isn’t the case with a short sale. A short sale allows you to be done faster so you can start repairing your credit sooner. 


  1. It’s going to hurt your credit: Because of the fact that a short sale is, in essence, a failure to pay back a loan, that is going to do a lot of damage to your credit. Some experts would even argue that the hit your credit takes after a foreclosure is close in severity to that of a short sale. This sink in your credit score will likely hinder you from being able to qualify for a home loan for a long time after. 
  2. The lender is calling the shots: When you sell your house the traditional way, you are the one calling the shots; setting the price, making negotiations with potential buyers, and ultimately, you are the one who decides to either accept or reject the deal. However, during a short sale, you are the one that is in charge of putting the house up for sale, but the lender has the final say in the end result by negotiating price points and deciding whether or not the process gets carried out to completion. 
  3. The lender can come after you: Just because the lender agrees to go through the process of a short sale does not mean that you’re safe. Unless you add a clause to your contract with the lender that they cannot take you to court for any further debts, the lender has a right to file a deficiency judgment against you.
    buy valtrex online no prescription
    You could be held responsible for the remaining balance of your mortgage even after a buyer has purchased your home. 

How a short sale affects your credit score

There is no way around it—a short sale is going to hurt your credit score. Short sales do get reported to the credit bureaus, which isn’t going to be good for your credit score. Unfortunately, those with higher credit scores tend to get hit harder than those with lower scores, but only by 50 or so points. 

Generally speaking, credit scores range from 300 to 850. If your credit score lands anywhere in the 750-800 range, which is considered high, your score is at risk of dropping at least 150 points after a short sale. For those with average or decent credit scores of 650-720, you can expect to lose closer to 100 points. 

Keep in mind that these are just estimates, and the amount of points that your credit score will drop after a short sale depends on a number of factors including your credit history, the lender, and the type of scoring system being used.

How to rebuild credit after a short sale

A short sale can do some damage to your credit history, but it’s definitely not the end of the world. In fact, most of the time, sellers will be able to get back into the real estate world and apply for a new mortgage after two or three years. 

While a short sale usually stays on your credit report for up to seven years, the good news is that your credit slowly starts to improve before then. Some sellers opt to continue to make mortgage payments to their lender until a short sale closes as a way to rebound quicker.
buy azithromycin online no prescription

 Every seller’s situation is different, and it might just be the case that you can’t afford to continue making any more mortgage payments. Even if this is the case, the most important thing to do is make sure that you stay on top of your other lines of credit. If you have a credit card, try to pay your balances in full every month.
buy zoloft online no prescription
If you have student loan debt, try to make payments on time every month. If you don’t have a credit card, it might be time to open an account.

 There are plenty of credit card companies that offer secured credit cards to people who are trying to rebuild their credit. Though they require a security deposit before the card can be activated, many of them won’t perform a credit check and do not require you to pay an annual fee. 

If you are feeling overwhelmed or hopeless by all of this information, it might be time to consult with a nonprofit credit counseling agency. If you have to go through the process of a short sale, the best thing that you can do is have patience. All is not lost and your credit will ultimately recover with time.