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How does short sale affect FICO scores?

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Anonymous
Not applicable

How does short sale affect FICO scores?

I am trying to find out how much of a hit do your scores take (roughly) if you are successfully able to do a short sale? 

 

My parents scores are in the 800's and own two homes--one that has depreciated from approximately 450K down to 180K (they put 20% down originally).  They have never been behind in any of their mortgage payments.  IF they are able to short sell this house (IF the bank allows), how will this "sale" affect their credit scores?  Any advice/responses would be appreciated.  Thank You all....

Message 1 of 5
4 REPLIES 4
JoeBJay20
Established Contributor

Re: How does short sale affect FICO scores?

Welcome to the forums!

 

It's going to hurt a good bit.  It will almost definitely result in a triple digit drop.  Regardless, I always advise people to never make financial decisions based on credit scoring.  If your parents are in a financial situation where they have no choice but to do a short sale on the house, then it should be done and the credit consequences can be removed over time.  That being said, you state that your parents are not behind on their payments, so is the short sale being done just because the homes have depreciated?

Message 2 of 5
Anonymous
Not applicable

Re: How does short sale affect FICO scores?

I can't tell you in general, but I can tell you what happened to us.  We short sold our home in October 08.  Our first mortgage was paid in full, but the HELOC was short paid.  We were never late, not even a single 30 day late.  My scores prior to the short were all in the mid 700s.  After the short, EQ went to 690, EX to 718, and TU to 670.

 

A year later, we're at:

 

EQ 697 EX 722 TU 740  (NOTE:  TU dropped the M9 from the HELOC when I disputed it; the others did not.)

 

So, for us it was an average of 50 points since the rest of our report was clean.  However, where most people get into trouble with short sales is the late payments that lead up to the sale.  It's not uncommon for someone to not only have the M9 after a short sale, but also a bunch of 90 and 120 day lates, especially if they have multiple mortgages.  I used some strong data to convince the lenders to approve the short sale even though we weren't late, and that helped us out a lot.

 

Hope this helps. 

Message 3 of 5
Lel
Moderator Emeritus

Re: How does short sale affect FICO scores?

What is the M9 reason code?
Message 4 of 5
Anonymous
Not applicable

Re: How does short sale affect FICO scores?

Sorry about that... M9 is basically an "M" = Mortgage Account, and "9" which is foreclosure.  Pretty much the worst rating you can get, as far as I know.

 

To me, it's a shame that for a short sale there's not another code, especially if you've never been late, but I guess a loss is a loss is a loss. 

Message 5 of 5
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