Jimmy Mulhern Real Estate Agent Gainesville, VA (571) 247-1638 Contact Profile
When consulting a homeowner facing a short sale, the first question I am usually asked is "What will this do to my credit?" Now comes the generic answer. it depends! With the large amount of foreclosures and late notices, banks have had to take into consideration the overwhleming amount of delinquencies. This has caused them to take a less aggressive approach to how they handle consumers with poor credit. But again, each scenario is different.
If you stopped paying your mortgage, it does not matter what you do your credit will be impacted! A short sale will not save your credit from the 30-day late notice. but it is significantly better than what a foreclosure will do. Even in this scenario, a short sale can be reported that can eliminate the negative account which will help your overall score.
When you list your home as a short sale, it does not necessarily mean that you are facing a foreclosure. Plenty of people are being transferred out of the area for work that owe more on their home then what it is worth. These are employed individuals who can meet their monthly payment requirements, but just owe more on their house. This is where the "it depends" part comes in. When your short sale is accepted, the key ingredient to a "Success" is how you are able to negotiate the note. This means that when the bank accepts your payoff, they report to the credit bureau on the mortgages status. The best solution is a "Paid In Full" or "Paid As Agreed" status. This should have no impact on your credit score and is the ultimate goal. These are easier to get accepted when there is an agreement between the bank and the
seller for a payment schedule on the amount owed. It is definitely a scenario that you must keep on the table to avoid the damage that a lowered credit score can have on you. Remember, this does not just impact future loans - it impacts rates you have on credit cards, insurance rates, and even some job opportunities.
If you are in a scenario where you are asking for the bank to forgive the debt you owe them, the first priority you have to get them to forfeit the rights to a deficiency judgment. Basically this is simply wording in the acceptance letter saying they will not seek a judgment against you. Now, if you are not able to negotiate out a "Paid In Full" status, you may have some credit implications. Do not let anyone tell you that you will never be able to get a home loan, or that you will have to wait "X" amount of years until you can get one. That is dictated by the loan you had, and the Fannie and Freddie programs usually will make you wait 2 years before you can get a home loan. However, there are too many banks out there that are all competing for business and one may give you a loan.
Most short sales have a minimal impact on your credit scores with a 100 point drop being an extreme case. The most important factor in what your credit will look like is whether or not you missed any payments. If not, then a successful short sale will allow you to continue on the road to financial freedom and ease the troubles of a home that is underwater.
By Jimmy Mulhern Real Estate Agent with The Mulhern Home Team - RE/MAX Premier
Posted on June 29, 2009 05:01 PM