Short-selling your home can be a way to lift a financial burden from your plate. The credit effects of a short sale are negative, but not insurmountable. Similar to repairing credit after a long history of delinquency, repairing short-sale credit requires commitment and dedication to repairing, maintaining and improving your credit health.
Instructions
1. Ensure that your home was indeed sold short, and not foreclosed upon. The difference is that foreclosure assumes that you lost control of the house and surrendered the property to the lender, and short selling assumes the lender took a dollar amount less than the outstanding balance of the loan. Foreclosure will prevent you from buying another home for at least five years, but it can be cut shorter if you truly sold the home short. Contact your lender to obtain this clarification for your loan.
2. Print a copy of your credit report from the link in the resources bar below. Begin keeping a record of print-outs of your credit report to monitor your accounts. Take note of your credit score and begin to monitor it over the next few months. A short sale should reduce a FICO score by between 200-300 points. Look for other areas of negativity on your report. For example, look for delinquencies on other accounts, charge-offs, and over-limit accounts.
3. Begin repairing your credit by paying all past due accounts first. Start reducing balances on your revolving accounts, with the goal of paying them in full. Set a budget that is manageable and pays down one account until it is paid in full. Contact any lenders holding accounts in collections and pay those; pay any charge offs. By repairing other elements of your credit--an area which you can control--you can begin to bolster your score.
4. Open an installment account that requires a standard monthly payment. Make on-time payments on this account, as well as on your other accounts. This establishes a new line of credit post-short sale and represents your ability to manage multiple accounts and clean up past errors. Contact local lenders and find out their regulations regarding new home purchases with short-sale-affected credit. Local lenders might be willing to adjust their guidelines, especially if you are a current customer.
5. Save for a down payment. While you may be able to purchase real estate again in as little as three years, you will surely be required to provide a down payment of at least 5%. A down payment, a refurbished credit history and time may get lenders to look more favorably at your future loan applications.
Tags: your credit, down payment, credit report, other accounts, your credit report, your home
