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Short Sales

Short Sales

How will a short sale affect your credit and will you be able to purchase another home after the short sale?

This will depend on whether or not your home is sold in a “preforeclosure sale” or a “short sale”.  Although the terms are used interchangeably,

 

1.  A preforeclosure assumes that the borrower has been delinquent in paying his or her mortgage and the servicer/investor agrees to accept a lesser amount to avoid the time and expense of a foreclosure action.  Your credit rating is severely impacted by this situation.

2.  A short sale refers to situations in which the servicer/investor of the mortgage agrees to a payoff of a lesser amount than is actually owed, even on a current mortgage, to facilitate the sale of the property to a third party.  This can be reported to your credit report as “PAID IN FULL” or “SETTLED FOR LESS”.  “Paid In Full” has no impact on your credit rating.  “Settled For Less” does have an impact on your credit rating but the impact is not severe and does not prevent you from buying a home.  It is impossible to predict the exact impact to your credit rating because a credit rating considers your entire credit history.  This event can affect you differently than it can affect someone with different credit history.  How it is reported can be negotiated with the lender but the outcome cannot be guaranteed.

3.  If the sale of your home is NOT a short sale and you become 30 days late or have been 30 days late or greater on any of your mortgage payments during the 12 month period before the completion of the sale of your home, current mortgage underwriting guidelines will not allow you to buy another home until you have had a 12 month period without any late payments.  These guidelines could change at anytime.

4.  If the sale of your home IS a short sale and you become 30 days late or have been 30 days late or greater on any of your mortgage payments during the 12 month period before the completion of the sale of your home,

1.  Current mortgage FANNIE MAE underwriting guidelines will not allow you to buy another home for a minimum of 2 years.  At 2 Years, the borrower will be required to put down 20%.  At 4 Years, the borrower will be required to put down 10% and at 7 Years, the borrower will qualify as if he never had a short sale.  These guidelines could change at anytime.  This information was obtained directly from Fannie Mae via Announcement SEL-2010-05 on April 14, 2010. View the announcement here:  fanniemaeeligibilitymatrix.pdf

2.  Current HUD (FHA) guidelines will not allow you to buy a home for 3 years.  After 3 years, you will qualify like anyone else.  These guidelines could change at anytime.  This information was obtained directly from HUD via Mortgagee Letter 09-52 publicshed on December 16, 2009.  View the letter here:  HUD_Guidelines-FHA_ShortSale_.pdf

 

3.  It is impossible to predict the exact impact to your credit rating because a credit rating considers your entire credit history.  This event can affect you differently than it can affect someone with different credit history.  The best estimate I can give you is that it will affect your credit by at least 100 points.

 

4.  You have the opportunity to settle with your lender and received full debt forgiveness stated in writing guaranteeing that they will never seek a deficiency judgment against you for the balance of the loan.

 

5.  If the sale of your home IS a short sale and you are NOT delinquent on any mortgage payment and have not been delinquent at any time within the 12 months prior to the credit report date or had excessive prior mortgage delinquencies,

1.  HUD will allow you to obtain an FHA mortgage provided you are current on all of your mortgage and installment loan payments at the time of the short sale and have not been 30 days late or more on any mortgage or installment loan payment in the 12 months period preceding the short sale.  These guidelines could change at anytime.  This information was obtained directly from HUD via Mortgagee Letter 09-52 publicshed on December 16, 2009.  View the letter here:  HUD_Guidelines-FHA_ShortSale_.pdf

2.  Current mortgage FANNIE MAE underwriting guidelines will not allow you to buy another home for a minimum of 2 years.  At 2 Years, the borrower will be required to put down 20%.  At 4 Years, the borrower will be required to put down 10% and at 7 Years, the borrower will qualify as if he never had a short sale.  These guidelines could change at anytime.  This information was obtained directly from Fannie Mae via Announcement SEL-2010-05 on April 14, 2010. View the announcement here:  fanniemaeeligibilitymatrix.pdf

 

3.  It is impossible to predict the exact impact to your credit rating because a credit rating considers your entire credit history.  This event can affect you differently than it can affect someone with different credit history.  The best estimate I can give you is that it will affect your credit by at least 40 points.

 

4.  You have the opportunity to settle with your lender and received full debt forgiveness stated in writing guaranteeing that they will never seek a deficiency judgment against you for the balance of the loan.

 

6.  If you foreclose, the affect on credit is much more brutal. You can lose as much as 300 points and conventional Fannie Mae guidelines won’t allow you to buy a home for 7 years. There are exceptions but don’t hold your breathe! Here is the information directly from Fannie Mae: fanniemaeforeclosure.pdf.  FHA will allow you to buy a home 3 years after a foreclosure but borrowers must have used that three-year waiting period to establish and maintain a clean positive credit history. Borrowers must also be able to show that their financial history, including income, will prevent another foreclosure from happening in the future.  The biggest issue when you foreclose is the lack of opportunity to settle with your lender and receive debt forgiveness as with short sale.  There is nothing that prevents them from coming after you for the debt or selling it to a collection company who may come after you.

You must still have the proper income, debt to income ratios, assets, and credit to qualify for a new mortgage.  In addition, specific lenders may have their own policies regarding short sales.  It is impossible to predict all of the issues or changes in guidelines that may interfere with your ability to purchase a new home.  You are advised and encouraged to verify all of this information and seek the advice of an attorney.