I was advised to post this here. Hope someone can help.

[Anonymous]

I just paid off approximately $17K in credit card debt.  I have one credit card left which has a small balance that I am paying off now.  Other than that we are debt free.  My last credit score was in the high 500's.  For family reasons my husband and I have to relocate.  We purchased our house about 2 years ago.  We have been advised to do a "short sale" and that it will hit our credit for about 40-50 points.  My questions are, how long before it comes back up enough to qualify for another mortgage if we have no debt?  Should we use the one card we have left?  Is there anything we can do to help it along?  How bad does a "short sale" really look on your credit report?

Thank you ever so much for any and all advice you can give me. 

Laura

[Lel]

The effect of a short sale on your credit score can vary; persons with higher scores will most likely see a greater drop.  With your current score, your estimate of a 40-50 point drop is probably a reasonable guesstimate.

I saw on another thread that you are not late on your mortgage, which is good.  If you are not late on your mortgage payments at the time of your short sale, then there is no waiting period before you can obtain a new mortgage.  However, the decision to extend you a new mortgage in the wake of a short sale is going to be at the discretion of the lender. 

Even if you find a lender that would be theoretically be willing to issue you a new mortgage despite a recent short sale, your credit score is going to be a sticking point.  You'll need to work on getting it back to at least 620, if not higher.  Recent threads have indicated the existence of scattered lenders still doing loans with scores of 580, but those are increasingly scarce.

I would suggest obtaining copies of your credit reports to try to identify why your scores are where they are.  Perhaps you will identify those factors that are contributing to your current scores.

Do you have a single mortgage, or a second mortgage/HELOC as well?  If the latter, then a short sale is going to be more difficult to negotiate. 

[Anonymous]

I have a single FHA mortgage.  Also, should I continue to pay the mortgage if and when it goes to short sale?   

We are hoping to be able to get another mortgage in 12 months or so.  The only other debt we have is 1 credit card which will be paid off in the next month or two.  

Thank you so much for your help.  If you couldn't tell, I am somewhat lost here.... 

[Anonymous]

have you laready discussed this with your bank.  Alot of banks are so overwhelmed that they are not even entertaining offers unless the seller is behind 30-60 days.  Then by the time the short sale situation goes through you could easily be 90-120 days late which effectively counts as a foreclosure as far as waiting periods, etc (3+ years).  If your bank will allow you to short sale prior to going late though, it would be alot easier.  That said, it will be tough to get your score sup with no credit cards to pay off (lowering DTI is a sure way to increase FICO) and in this credit market gettign additonal credit to rebuid credit is going to be really tough.  Good luck.

[Anonymous]

No I never thought to talk to the mortgage company.  I will definitely call them though.    Thank you