Short sale vs. foreclosure: credit, debt and your next mortgage
Both hurt your credit. The difference is what comes after: what you may still owe, and how long before a lender will give you another mortgage.
Side by side
Credit report
Both are serious negatives and both generally stay on your credit report for seven years. The missed payments leading up to either one do much of the damage.
What you may still owe
After a foreclosure, the lender may be able to sue for the difference between the debt and the sale price. In a short sale, you can negotiate a written waiver of that balance as part of the approval. Deficiency judgments in NC.
Conventional loan (Fannie Mae)
Seven years after a foreclosure, or three with documented extenuating circumstances. Four years after a short sale, or two with extenuating circumstances.
FHA loan
Generally three years after either one.
Control
A short sale is a sale you arrange, on a date you agree to. A foreclosure is an auction on the lender’s schedule.
Taxes on forgiven debt
Debt a lender forgives can count as taxable income. A federal exclusion for forgiven debt on a main home has been extended and allowed to lapse several times, and whether it applies depends on the year the debt is forgiven. Other exclusions, like insolvency, may apply. Ask a tax professional before you close.
When a short sale is the better choice
When you owe more than the house is worth and cannot catch up, a short sale usually leaves you in a better position than a foreclosure — mainly because of the deficiency waiver and the shorter wait for a conventional mortgage. It needs time for lender approval, so start before the sale date is close. Short sale help in Charlotte.
Frequently asked questions
Is a short sale better than foreclosure for my credit?
The credit score hit is often similar. The bigger differences are the deficiency waiver you can negotiate and the shorter waiting period for a new conventional mortgage.
How long after a short sale can I buy a house?
Generally four years for a Fannie Mae conventional loan, two with documented extenuating circumstances, and about three for FHA.
Is a deed in lieu the same as a short sale?
Close. Fannie Mae uses the same four-year waiting period for both. Deed in lieu in NC.
General information for North Carolina homeowners. It is not legal, tax or financial advice. Terri Lombardo is a licensed real estate broker, not an attorney or tax adviser.
Free HUD-approved housing counseling is available to North Carolina homeowners through the NC Housing Finance Agency on 1-888-442-8188.
Weighing a short sale?
Tell us roughly what you owe and what the house is worth. We will tell you whether a short sale is realistic and how long it needs.
Serving Charlotte and the surrounding counties.