The impact of a Short Sale on your Credit Score
The impact of a short sale on credit scores comes not from the short sale itself, but from the missed payments.
If a borrower remains current on their mortgage during the short sale process, their credit score will not drop a point.
100% of the negative impact on a borrower’s credit score comes from the missed payments that lead up to the short sale, assuming a borrower stops making their payments.
If a borrower does not stop making payments, they will have no negative impact on their credit score from the short sale.
Keep in mind, the short sale will still be reported on their credit report – it will appear as “Debt settled for less than the amount owed” and it may impact the borrower’s ability to qualify to buy another home depending on the lender and the loan program, but it will not impact their credit score.
Currently FHA, VA, Fannie Mae & Freddie Mac require a 2 year seasoning period after a short sale before a borrower can qualify for a government insured loan.
However, with that said, FHA has just initiated a new loan program that allows a borrower to qualify for an FHA loan the next day after completing a short sale, subject to certain conditions.