7

Like many others, my house has fallen in price so much that I now owe the bank over much more than I can sell it for between the first and second mortgage. I know that in my state (and many others) I could just walk away from the first mortgage and they can't come after me (no-recourse). But I suspect my second mortgage isn't such a loan.

How much of a credit score hit would be reasonable to expect? I am in the high 700's now.

7

Will you be paying your mortgage during the period you are trying to sell? That is the bigger indication of effect on your score.

The other thing you might care about is how long you are black listed from future mortgages. It should be only a couple of years if you do a short sale, but closer to 7 if you walked away.

The last I heard on the Clark Howard radio show was, as far as direct impact to your score, a short sale, a foreclosure and a deed in lieu all take the same number of points. But those points are not as many as the number of points you lose if you don't pay your mortgage for several months.

Worst case, plan for a drop of 400 points if you aren't paying your mortgage and the sale takes a long time.

MyFico released a chart explaining the possible impact. Remember everybody uses a different scoring model, but this is a nice guide.

http://www.creditcards.com/credit-card-news/fico-mortgage-deliquency-score-damage-foreclosure-1270.php

5

As Mr. Christer said - the mortgage lates impact your credit score much more dramatically than the short-sale event itself. How much? It's impossible to say since credit is calculated on a ratio formula and is different for every individual.

It will, however, be much less detrimental than "walking away" a.k.a foreclosure. The foreclosure event is very damaging to credit, not to mention the mortgage lates leading up the the foreclosure. I've seen many cases of Bankruptcies that had better scores than people with foreclosures.

If you're wondering how long it will take you to become loan worthy -

Conventional loans: 7 Years after foreclosure vs. 2 years after short-sale (assuming your credit has been restored to a point where you can qualify again)

FHA loans: 3 years regardless of if it's a foreclosure or short-sale. EXCEPTION, if you conduct a short-sale due to an extenuating such as a job relocation with no mortgage lates. In this case you could be loan worthy again immediately.

Hope that helps.

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