Triangle Real Estate

Credit Consequences After a Short Sale or Foreclosure

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No homeowner wants to think about losing their home to foreclosure or undergoing a short sale, but in reality, it does happen. Some lenders would rather accept a short sale, in order to avoid the foreclosure process. A homeowner may rather short sale their home as well, in order to pay off the loan for less than what is owed. In either instance there are repercussions on the homeowner’s credit.

How Short Sales Affect Your Credit

First of all, a short sale occurs when the proceeds from the sale of a house are less than what the owner still owes on the mortgage. When sellers have a home go through short sale, they typically lose 50-100 points on their credit rating. The sellers may wonder about their future home buying power after a short sale as well. Even after losing some of their credit rating, the sellers can typically buy another home in about two years at a good interest rate. Only the late mortgage payments get reported when a homeowner undergoes a short sale.

How Foreclosure Affects Your Credit

In a foreclosure situation, the homeowners lose much more of their credit score than they would in a short sale. The sellers credit score after foreclosure will usually fall 300 points. It will also affect the length of time before a buyer can get a good interest rate when buying another home. After foreclosure it typically takes up to ten years for a borrower to get a good interest rate. Foreclosures must always be listed on any credit application as well. If a homeowner has more than one property that forecloses then their credit could be damaged up to 600 points.

Foreclosure vs. Short Sale

Issue

Foreclosure

Closed Short Sale

Credit Score Score Takes Over 3 Years to Recover - Drops 250-300+ Score Can Be Recovered in 12-18 Months - Drops 50-150
Credit History Record Remains 10 Years Not Reported
Security Clearances Revoked or Terminated Does Not Challenge Most
Current Employment Re-assignment or Termination Not A Challenge
Future Employment Most Cases Will Challenge Not A Challenge
Deficiency Judgement 100% of Foreclosures Many Give Up Right to Persue Judgement
Deficiency Judgement (Amount) Possible Higher Amount Lower Negotiated Amount

Foreclosure vs Short Sale - The Impact for Future Loans-Primary Loans

Issue

Foreclosure

Short Sale

Fannie Mae Ineligible for 5 years Eligible After 2 years
FHA Loan-Late Ineligible for 5 Years 3 Years From Date of Insurance Claim Paid to Lender
FHA Loan-Current Ineligible for 5 Years No Wait
VA Loan-Late Ineligible for 5 Years 3 Year Wait
VA Loan-Current Ineligible for 5 Years 3 Year Wait
Conventional-Late* Ineligible for 5 Years 2 Year Wait
Conventional-Current* Within 7 Years Will Affect Interest Rates No Wait - But Buyer Must Be Current On All Obligations

 

What To Do with Your Triangle Real Estate Investment?

If you find yourself in a situation where a short sale or foreclosure is the only option, speak with a lending professional or short sale/foreclosure expert to determine what steps are best to take. At Linda Craft & Team, REALTORS, we will guide you through the process to discover the best course of action for your options. Please contact us today to start deciding what your choices are, before its too late.

 

 

Linda Craft & Team, REALTORS do our best to provide you with current and accurate information. However, we are not attorneys or accountants. Please consult with your attorney or CPA for further information and how this information may affect you personally.