For most families, a home is not only a significant financial investment but also a source of pride. The loss of a home, due to unexpected events such as unemployment, can be financially and personally devastating.
Do not underestimate the importance of preserving your good credit. Your future ability to purchase certain items, rent or buy a home and complete other transactions often requires a credit check. Consumer credit agencies and your Lender can help you explore solutions to keep your credit from becoming terribly blemished.
Facts about Short Sales, Foreclosures and Credit Ratings
- The nation's two largest mortgage investors, Fannie Mae and Freddie Mac -- with certain exceptions -- won't lend to you again for five years (foreclosure) and two years (short sale).
- A consumer's FICO score will take a huge hit either way until responsible credit behavior supplants the foreclosure / short sale over a period of time.
Maintaining good credit is even important for job hunters. When you apply for a job, the employer may check your credit history to determine:
- whether you have been sued
- have filed for bankruptcy
- or have trouble paying your bills
Your credit score can also play a significant role when requesting an increased security clearance with your present employer.
Some real estate agents and investors may innocently suggest, though well intentioned (or not) to a Distressed Homeowner considering a short sale isn't nearly as detrimental to credit as a foreclosure. The reality is a short sale or foreclosure on your credit will suck either way.
Misled or misinformed consumers mistakenly believe a negative credit rating such as foreclosure is somehow worse than a "successful" short sale. Distressed Sellers! Creditors view foreclosures, short sale and some other modifications as the customer did not pay as agreed.
In fact, Fannie Mae and Freddie Mac have a firm stance against Distressed Home Owners who fail to pay their mortgage or end up defaulting. Seasoning of a foreclosure is five years. A short sale may only require two years.
Short Sale Affect on FICO Scores
In the world of credit scores a few items weigh carry more weight and serve as future predictors to creditors and lenders.
- Serious delinquencies
- Derogatory public record
- Collection filed
A homeowner in default is technically "in collection."
Buying a Home after a Short Sale
A foreclosure is likely to remain on your credit report in the public records indefinately. In addition, this fact must be attested to on applications for loans, employment and security clearance:
- Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?
- Have you directly or indirectly been obligated on any loan which resulted in foreclosure, transfer of title in lieu of foreclosure, or judgment?
The following items may be subject to individual evaluation, no matter how high the credit score:
- Bankruptcy
- Deed-in-lieu
- Foreclosure
- Short sale
- Judgments
- Collections
- Charge-offs
- Tax liens
Frustrated, devastated and Distressed Home Owner's with a mortgage no longer affordable find more relief to voluntarily vacate the property through a short sale rather than to be forced out by foreclosure. An impeccable credit history it may have taken a lifetime to establish vanishes in a few short months.
Ultimately, avoiding foreclosure can mean keeping your home, maintaining a "good" credit rating and keeping your sanity!
I too have faced foreclosure. I know better than most, your options after being turned down for a loan modification. Feel free to call me with questions or for more information... 10am thru midnight, EST 443.305.2844/ 410.320.3427. Together, we can find a solution that fits best for you and your family.
Renee K
Comments(2)