According to Gerri Willis, Money magazine contributing writer and host of CNN’s “Your Bottom Line,” a short sale in which you negotiate with the bank to sell your home for less than you owe on your mortgage, will have a dramatically negative affect on your credit.
That said, if you’re underwater on your mortgage and you need to move, a short sale is a better option than foreclosure. Going through foreclosure will make it very difficult for you to get a loan for at least three to five years; if you’ve done a short sale, you may be able to qualify for a new mortgage within two years.
BOTTOM LINE: Choosing a short sale over foreclosure is difficult. Both take a bite out of your credit rating. But one is easier to recover from.