Short-sale versus foreclosure. Gerri Willis advises on which would be the smarter choice.

By Gerri Willis, CNN personal finance editor


NEW YORK (CNNMoney.com) -- Question 1.We would really like to get rid of the house, but we don't want to let it go into foreclosure. Someone mentioned a short-sale. If our lender agrees, should we try this? What impact will it have on our credit rating? - Confused in California

Here's the skinny on a short sale: Basically you sell the house for less than what the mortgage is worth and the lender forgives the difference.

The problem is that your FICO score will drop about as much as it would with a foreclosure.

But that doesn't mean you can't ever take out another mortgage. In fact, you may be eligible to buy a home with a loan backed by Fannie Mae or Freddie Mac more quickly with a short sale than you would if your home went into foreclosure. Lenders generally try to encourage short sales instead of foreclosures since they cost less.