A short sale is a favorable alternative to a foreclosure. This is especially true as in regards to its impact on the homeowner’s credit score. A short sale in North Carolina can remain on your credit report for up to 7 years. But, with proper management, it is possible to get a new mortgage in as little as two years.
There are two options for anyone who is completely unable to pay their mortgage. It can either end up in foreclosure or end in a short sale. However, not everyone may be able to secure a short sale. For those who do, they should be glad. It is preferable to foreclosure for the homeowner.
What Exactly Is a Short Sale?
For many people in Charlotte, NC, and the United States overall, it is difficult to pay off a house in full from the onset. Homes are expensive, and without any other options, many people would not be able to own a home. This is where the concept of a mortgage comes in.
The lender will buy the home for you from the start, leaving you in debt to them. Each month, over what spans decades, a part of this debt is repaid to the lender.
There are cases where the homeowner is no longer able to pay their mortgage. This is usually due to some form of hardship that changes their financial situation. Usually, missing four mortgage payments makes the lender begin the foreclosure process.
This is how the process plays out in most cases of people with hardship. Yet, there is another option available when payment of the mortgage can no longer go on. This is a short sale.
A short sale is a process by which the house gets sold at a price less than what remains for payment on the mortgage. For instance, consider a homeowner who has $200,000 left to pay on the mortgage. The house may then get sold for $180,000 to an interested buyer instead. This money goes to pay a part of what the lender is owed by the homeowner.
You may be wondering why the lender would be willing to take a definite loss on the property. Well, the loss is relative. A foreclosure and a short sale will usually cost the lender money in some form. In a foreclosure, the process can be lengthy and expensive. The home will usually not sell at auction for a price that cancels out what is left on the mortgage. This is besides all of the legal costs the lender will need to pay. A lender will usually weigh their options to determine which means is likely to result in less of a loss.
How To Reduce the Time a Short Sale Stays on Your Credit Report
A short sale will not appear on your credit report in those words. It will be termed a ‘settled debt’ or a ‘negotiated settlement’. But, this wording doesn’t mean it will have less of a hit on your credit. You can not predict the effect that a short sale will have on your credit. A study done by FICO showed that a higher credit score tends to take a bigger hit in the face of a short sale.
This damage to your credit report will remain for seven years. Luckily, managing your credit well can reduce this time to as little as two years. By then, you may find that you qualify to take out another mortgage. Foreclosures are not this gracious.
Here are some of the ways by which you can repair your credit after a short sale.
- Save as much as you can. It is important to have some money set aside in case of bills or unexpected expenses. When you find yourself unable to pay off bills or credit cards on time, your credit record will take a hit. That’s not what you need when you’re dealing with a recent short sale. Ensure that you have emergency funds available. It’s never too late to start building that up.
- Budget and get frugal. It’s not fun, but you’ll need to cut down on the things you spend money on which are not necessary. This will help in building up your savings. If you can, pay off all cards and bills on time. Your credit will thank you.
- Pay everything on time! This is quite important. Your payment history comprises a huge part of your credit score. You need to pay off all bills as soon as possible. Avoid the grace period when rebuilding credit and always pay before the due date. Savings will ensure that you are never caught off guard by bills. If you tend to forget to pay them, you can set up automatic payments or a reminder. This is not exclusive to bills alone, but includes your credit cards as well. Make sure to pay off outstanding card balances, or at least pay part.
- Be smart with your credit cards. There are a lot of ways that proper credit line management can improve your score. One way is to avoid closing open credit cards. It might seem like a good way to increase credit, but it creates the opposite effect. Following your short sale, you may realize that you can’t get an unsecured credit card any longer. In these cases, a secured credit card is a good option. Using them intelligently will be positive for your credit report.
How Can a Short Sale Agent Help?
A Charlotte, NC short sale agent will be able to help out with the processes that come with a short sale. It is important to know that selling a house via a short sale is very different from a regular sale. There is a vast amount of paperwork required, and it can be overwhelming. For someone who is going through hardship, the last thing they need is more stress in their life.
With a competent and experienced short sale agent, you can rest knowing you’re in good hands. You can worry less about compiling the short sale package and filing paperwork. Finding a buyer is also made easier.
With a capable short sale agent like Nancy Braun, you can get your house sold as fast as possible. The quicker you complete your short sale, the quicker you can begin to rebuild your credit. The quicker you rebuild your credit, the closer you’ll be to being able to buy a new house.
Showcase Realty will make your short sale a stress-free process. Call Nancy Braun at 704-997-3794 to sell that house fast. Once you do, you can start towards rebuilding your credit.