Short sale vs. foreclosure – May. 8, 2009.  from CNNMoney.com

A. 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.

A consumer who has been through a short sale could see a drop in her credit score of up to 200 points, essentially the same decrease as if the homeowner had gone into foreclosure, says John Ulzheimer, president of consumer education for Credit.com.

And like a foreclosure, the negative mark will pull down the score for seven years.

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.