According to sources in the mortgage industry, people who agree to a short sale with the lender do far less damage to their credit rating than those who go through foeclosure.While in both cases, short sale and foreclosure, the delinquent mortgage will negatively affect their credit rating, at least short sellers avoid having a "debt discharged due to foreclosure" on their credit reports
Mortgage and credit experts say that, after bankruptcy, having a foreclosure on your credit report is the worst result and will reduce your credit score by over 250 points. You could also have a wait up to three years to qualify for a mortgage at a reasonable rate.Short sales show up on a credit report as a "pre-foreclosure in redemption" status and can result in a credit score reduction of 100 points or less. After the sale, the mortgage may show up as "discharged." People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 18 months. So, if buying a home is a future goal, then a short sale is the better option for many.
Homeowners cannot simply decide that they want to unload a home with a short sale: the lender must agree to it. The key to getting a lender to go along is to demonstrate two things: that you haave no other financial resources to pay the mortgage, and that the sale price the buyer is willing to pay is the fair price the market will bear. If a lender believes it can get more for the house by taking possession of it and selling it themselves, then they will not go along with a short sale.
People who want to go this route should contact a local real estate firm with experience in short sales and negotiating with the lender(s). These specially trained agents will know the process and deliver the documentation that the lender requires to authorize the short sale.If all goes as planned, the lender will receive all of the proceeds, typically not enough to pay off the loan. The remaining balance of the loan is discharged. But a homeowner agreeing to a short sale should also get legal advice to protect his or herself from future claims of the lender.