Tuesday, October 11, 2011

How a Short Sale, Foreclosure and 30 Days Late on a Mortgage Affect Your FICO score.

By Troy Corman,

Working in real estate and dealing with home sellers and renters in today's marketplace, you get a first-hand look at the financial damage many individuals have recently encountered. Short sales, foreclosures, and bankruptcies are a common theme.

Like most, I was surprised to find that the credit destruction from both a short sale and a foreclosure is quite similar. After reading a blog entry, Credit Scoring Impacts Short Sale vs Foreclosure by Massachusetts Realtor Bill Gassett, I thought this information was too valuable to keep to myself. Thanks Bill for a great article!

So how does a short sale affect your FICO score, or credit score? Surprisingly, you'll find that a short sale and a foreclosure have very similar effects on your credit score. As you'll see in the chart above, a person who starts out with a credit score of 680, can expect his or her credit score to drop to 575-595 after a short sale AND it's the same reduction for a foreclosure. A bankruptcy even does more damage as it will drop the said 680 credit score to the 530-550 range.

Also, just being 30 days late on your mortgage really hammers your credit score. As you'll see in the FICO chart, a 30-day late payment reduces the 680 credit score to the 600-620 credit score range.

So how long does it take to restore your credit after a short sale, foreclosure or 30-day late payment on a mortgage? Well according to FICO, the higher your original credit score, the longer it takes to restore that credit score to it's previous level. A 30-day late mortgage payment would take about 9 months to get back to the 680 level if you started out there. Unfortunately, it would take about 2.5 to 3 years to get back to a 720 FICO or 780 FICO, respectively.

A short sale is still better than having a home foreclosure. A short sale on a Fannie Mae loan will allow you to buy a home sooner - within about 2 years. With a foreclosure on a Fannie Mae loan, you'll have to wait 5 years to purchase another home and 7 years if you suffer a foreclosure on an investment home.

If you need to buy, sell or get a home leased, contact me at 214.690.9682, or email troycorman@t2realestate.com.

Troy Corman is the founder of t2 Real Estate LLC, a Dallas real estate firm providing specialized knowledge with a hands-on approach. Specialties include residential real estate brokerage, land and acreage, and commercial real estate services. Contact us today at 214.827.1200 if you need to sell, buy or get your DFW property leased.

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