First let’s start off by being honest here - your credit is going to be impacted whether you do a short refi, a short sale, a deed in lieu or just sit there and let a foreclosure happen. It would get absolutely hammered by doing a bankruptcy.

 

So which of these “evils” is the lesser, when it comes to you being able to get a mortgage and buy another house in the future. That’s the real question here. The answers that are available vary quite a bit. If you otherwise qualify, you may be able to get an FHA- backed mortgage almost right away after a short sale. For a conventional mortgage figure at least 2 years.

 

So, once again, I must point out that I am not a financial adviser, a lawyer or a CPA. I have to look this stuff up, too.  Here’s what I have found in various articles:

 

Short Sale and Foreclosure Effects on Credit

The Impact of Short Sales / Foreclosures on Credit Reports

By Elizabeth Weintraub, About.com

 

Information on effect of short sale of your credit score - from Bills.com

 

A mortgage "short sale" and your credit report - from ask Max

 

How long will it take to recover from a short sale or foreclosure? - from a blog by Phyllis Brookshire

 

Will a short sale hurt my credit? - from Mortgage Relief Formula

 

Is a short sale right for you - from Business Week’s Hot Property blog, Oct 16

 

Short Sale vs. Foreclosure: Is there a Difference on Your Credit? - from the Farr Forum

 

And what about the bankruptcy option?

 

Which is worse: Foreclosure or Bankruptcy? a 2007 MSNBC article

 

Foreclosure vs Bankruptcy: Which does more damage? An article from the mortgagecreditproblems.com web site

 

So the bottom line seems to be “it depends”. It depends upon how the bank reports the short sale to the credit agencies. There would appear to be a slight edge given to a short sale over a foreclosure as far as immediate credit score impact and a clear edge so far as the time that must pass before one can get a new mortgage, which is sort of the point of worrying about this is the first place. It looks like you’ll be able to get a new mortgage in a 2-3 years after a short sale, whereas a foreclosure can mess things up for up to 5 years and a bankruptcy for even longer.

 

Obviously, in any case, you’ll need to get your whole credit act together and keep a clean record of on-time payments of any debts during the ensuing years. If you decide to rent or lease during that time, establishing a good clean record of on-time payments will help.