Getting divorced and neither can afford the house alone?

Austin Texas – If you are getting divorced and neither of you can afford the house on your own, I would of course recommend you sell the house. Now, if you are reading this Blog, then you may be researching a Short Sale; which means that you may be upside down in the home. You have three options if that is the case.

Option #1: Let your lender foreclose on the home. You just stop making the payments and surrender the home to your lender via Foreclosure or Deed-in-Lieu of Foreclosure (that is if your lender will go for a Deed-in-Lieu, which is highly unlikely).

Option #2: Short Sale the house and get the debt wiped out. A short sale offers the following benefits over a foreclosure.

Issue: How soon can I get a Loan again?

Foreclosure: The current Fannie Mae Guidelines require you to wait 4 to 7 years (depending on your down payment size) before you can buy another home with a Fannie Mae Loan if you are foreclosed on. Most other banks and lenders have the same or even stricter procedures. If your lender filed a deficiency judgment against you after the foreclosure, then you will have resolve that judgement first before getting another loan. And that could be tough if the judgement is substantial.

Short Sale: If you are back on your financial feet, you could qualify for a Fannie loan only 2 years after a short sale. FHA has a program whereby you may only need to wait 1 year after the short sale in order to do an FHA loan (certain conditions apply).

Issue: What will I have to disclose on future loan applications?

Foreclosure: Most future credit applications will require you to answer the standard question, “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?” you’ll have to answer that question Yes.

Short Sale: You can state “No” to the standard foreclosure question because you short sold your home. You only have to say yes if the bank completes the foreclosure.

Issue: Credit Score Impact.

Foreclosure: Your score is typically lowered by 300+ points or more. Foreclosure often impacts your credit score for about 3+ years or so.

Short Sale: Only the late payments show up on your credit report. After a short sale, the mortgage is normally reported as “paid in full, settled, or paid as agreed.” This has a modest effect on your credit score if all your other payments are being made on time. Often your credit score is back to normal in as little as 12 months after a short sale.

Issue: Will I owe the bank any money for the shortfall?

Foreclosure: Many lenders take 12 to 24 months to foreclose a property, clean the title, and then resell it (total start to finish time frame). These standard and necessary pre-sale activities they do dramatically increases their loss and makes any deficiency judgment they will file against you later in the future potentially much bigger. And the deficiency judgment can haunt you for many years. In Texas this judgement can follow you around for as long as 10 years if your bank is pro-active about re-filing it every two years (and most do).

Short Sale: Lenders will not normally file a deficiency judgment against you in Texas in a short sale situation, nor do they normally ask for a promissory note on a short sale either (now there are exceptions to this). The shortfall and debt are normally just wiped clean off your credit report(s) when you Short Sale in Texas.

Option #3: Rent the property. If you are upside down, then it is likely that the rent will not cover the mortgage, taxes, insurance, and expenses. That means someone will have to write a check each month covering the rent loss and/or short-fall.

If you would like to learn more about Bank Short Sales, click on my Austin Short Sale Link below:

http://AustinShortSale.com

Enjoy my article above?
 

Check out my new FREE report entitled "11 Things You Need to Know to Pass Your Home Inspection"  which explains the 11 most important issues (most buyers and sellers don't know about) regarding the inspection.

CLICK HERE to get my FREE 11 Inspection Traps Report NOW.