If you are currently exploring the option of a short sale I assume you have asked yourself “will are short sale affect my credit score?”
 
The answer is, yes it will have a negative affect on your credit score. But the affect will not be nearly as devastating as those of a foreclosure or deed in lieu.

The meaning of a short sale is simply the current market value of your home is less than what you still owe on your mortgage balance. During this struggling time many homeowners explore the option of a short sale in order to save their credit from foreclosure. The actual process of a short sale will take place when your current mortgage lender agrees to accept less than the remaining balance on your home. But your lender must agree on the amount, if not you must explore another option. 
A short sale will not be reported as a charge off, foreclosure, and or late payments. It will typically be considered “paid settled” which is not the best, but not nearly as bad as foreclosure. In fact, sometimes lenders will even approve a short sale without even missing a single payment. By doing this the affects on your credit score will be much less than if you were delinquent.
 
The times when a short sale has devastating affects on ones credit, is when that person has began missing their mortgage payments. Your lender will begin reporting you late to the credit bureaus as soon as your 30 days late, so most of the time your credit has already been lowered even before the short sale.

For example, when you are in the 59 day plus late range and you then perform a short sale, your credit may drop 200-300 points. Your credit report will now show what is called “a pre-foreclosure in redemption status.
 
With that said if you complete a short sale while maintaining current on you mortgage your score may only drop about 75-100 points, as to foreclosure which will lower your score anywhere from 200-300 points.

Fannie Mae guidelines now allow a seller to immediately obtain a new mortgage to purchase another property if that seller was current at the time of sale, had no delinquencies exceeding 30 days and did not agree to repay the debt relief. However, obtaining a short sale before you are yet delinquent on your mortgage is easier said than done.

If you are delinquent on your mortgage at the time of sale, do not expect to buy another home for a minimum of two years. Fannie Mae guidelines require 24 months seasoning. A foreclosure or deed in lieu would result in not being able to purchase a home for 3-5 years.

Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.