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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16580
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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What is the difference

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What is the difference a foreclosure vs a short sale affect your credit rating?
Thank you for your question, and thanks for using

In a short sale, you are essentially settling the debt on your home for less than you owed on the home. The words "short sale" will not appear on your credit report, instead your record will read something to the effect of "paid for less than agreed" or "settled for less than agreed" The hit to your credit score can be between 50 to 130 points. You can still be current on your mortgage payments and orchestrate a short sale. If this is the case, you can purchase a house through Fannie or Freddie immediately after the sale with no restrictions. If you short sale your home and had payments in arrears, then you typically must wait two years before you can purchase a Fannie/Freddie home.

If you have a foreclosure, it is noted as such on your credit report. This is a derogatory mark that remains for at least 7 years. Your credit score will also fall 105 to 160 points. Your wait to purchase another home using Fannie and Freddie after the foreclosure is substantially longer. Some employers will choose not to hire individuals that have had a negative mark such as a foreclosure on their record.

So, if you can swing a short sale it will be much better for your credit report. When you apply for a new loan, you can honestly say you did not foreclose on your home, and you can simply report that you sold your home. It will be much easier to obtain financing.

Both a foreclosure and a short sale will damage your credit score, but for most the damage will be minimized with a short sale.

Please let me know if you need anything additional. If not, please rate my response as "excellent" so that I may receive credit for assisting you today.
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Customer: replied 4 years ago.

Thank you very much for the very detailed explanation of the

differences.. My follow up question is if the house was purchased

by the wife, and the husband has already purchased another home,

will the bad credit reflect on his credit score too?


Thank you for your follow up, Mary Ann. If the house is owned only by the wife, the foreclosure or short sale will NOT impact the husband's credit score. It will only impact the wife.

Please let me know if you need anything additional. If not, please rate as "excellent" so that I may receive credit for assisting you today.