Understanding the results of your housing situation

Short sales, deed-in-lieu, and foreclosure.

Coming out of a major family financial crisis and realizing you made it through can be a big relief. Your stress level drops, you can even see your family relaxing a little more. But hold on for one minute more because understanding the result of your housing situation may give you a better understanding of how to rebuild your long term credit history.

When a modification or other agreement for you to stay in your home is not reached then usually one of three options occur: short sale, deed-in-lieu, and foreclosure. With these three options the terms and conditions can have varying effect on your credit report and score. Along with this, how the option is reported to the credit bureaus also has an effect on your credit report and score.

Exactly how much does a short sale, deed-in-lieu, or foreclosure impact your credit score? According to Fair Isaac, also better known as FICO, the impact varies depending on type of settlement received. The following chart was derived from FICO to illustrate the various impacts each event has on credit scores.          


Old credit score

New credit score

Short sale or deed-in-lieu with a waiver of deficiency balance


610 – 630 range



605-625 range



655-675 range

Short sale with a deficiency balance or foreclosure


575-595 range



570-590 range



620-640 range

How long does it take to fully recover from each of these outcomes? FICO reported the following: if you have a credit score of 680 and your workout is either a short sale or deed-in-lieu with a waiver of deficiency balance you can expect your full recovery time to be about 3 years. If your starting credit score is 720 then the recovery time is around 7 years, for 780 the recovery time is 7 years as well. If your workout is a short sale with a deficiency balance your full recovery time for a credit score of 680 (3 years), 720 (7 years), and 780 (approximately 7 years). If you experience a foreclosure your full recovery time is the same as if it were a short sale with a deficiency.

What does all of this mean? It means if you have a good credit score (above 700) the impact on your score will more than likely be greater and your time to fully recover will take longer assuming you are meeting all your other obligations than if your credit score was below 700 to begin with.         

Michigan State University Extension has HUD/MSHDA certified housing counselors on staff to assist with the difficult process of foreclosure. To find a counselor near you visit the MI Money Health website or call your county extension office. Michigan State University Extension has released a new toolkit for homeowners who are experiencing or have previously experienced foreclosure. This toolkit will equip these individuals and families with tools to help them recover their financial stability, in the case that a recovery of their home is not possible. The toolkit is available to download free online.

Michigan State University Extension offers financial management and home ownership education classes. For more information of classes in your area, go to either the MSU Extension events page of the MI Money Health website.

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