Tuesday, July 17, 2012

My Credit is Shot, Why Do I Need a Short Sale?



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As a homeowner, if your credit is already shot and you are having financial hardship to the point you cannot pay your mortgage, you should consider a short sale in opposition to foreclosure.  There are many reasons why you should consider a short sale, even if you are just late on your mortgage.  If you are late on your mortgage and do not need to foreclose your property, you will still slip farther into financial difficulties due to the late fees.

When you are late on your mortgage it affects all of your payments.  Your mortgage payment history can affect your credit score by up to 35 percent of the total score.  35 percent of your total score is a huge impact on your credit score, so you must minimize it as much as possible.  If you find yourself in a situation where you have gotten behind on your mortgage payments and your credit score is getting killed, a short sale is a viable option.

A short sale will still impact your credit; however, the impact will not be as severe as a foreclosure.  A short sale will impact your credit score for around 18-36 months, while a foreclosure will impact your credit score for between 5 and 8 years.  Also, if you have credit cards through any company, the contract that you signed with the credit card agency will have a clause stating that if your credit changes significantly, the credit card company can change the interest rates.  So when your credit score drops drastically due to a foreclosure, the interest rates on your credit cards will sky rocket, leaving your in further financial trouble.

Your credit card interest rates are not the only thing affected by a declining credit score.  Your insurance rates are also affected by your credit score.  Insurance companies often times base their rates on a person’s credit.  If you foreclose on your house, in addition to seeing your credit card interest rates increase, your insurance rates will increase as well.

On credit applications, there is a box that asks if you have ever had a foreclosure.  Any time after you have a foreclosure, you will always need to mark this box.  There is no expiration date; it will be with you from that point on.  There is no such box for a short sale.

A short sale is often a much better option than a foreclosure.  A short sale can stem the tide, stop the bleeding, and protect yourself and your family from financial devastation.