Short Sales and your Credit Score?

Short Sales and your Credit Score?

My credit score is taking a hit!

The following is one of the most posed questions I get on a regular basis from my clients. “Is the hit on my credit really less if I do a short sale opposed to letting my property go through foreclosure”?

With the secrecy surrounding the credit reporting agencies and their rating criteria I don’t believe that anyone really knows the true answer to that question, but this is what I do know.

Email Lou for quick answers to your short sale questions.

FHA loans insured through the Department of Housing and Urban Development have a requirement that persons applying for a new loan with a foreclosure on a previous mortgage on their credit report will need to wait a period of up to five years before they can be eligible for a new FHA insured loan. Applicants who have a negotiated short sale settlement on their credit report from a previous mortgage will regain their FHA eligibility after a period of only 36 months.

The critical question which needs to be asked is, can I find a lender to lend to me when I regain my FHA eligibility after the required waiting period?

No one can say what the lending requirements will be in five years or even in 36 months. By negotiating a short sale with your lender it is reflected as a negotiated settlement on the credit report. One school of thought is this. If you negotiate a settlement with the lender, avoid a deficiency judgment and begin to repair your credit at the time of the short sale moving forward there is a much better chance to qualify for a new FHA insured loan after the required waiting period. The wise individual would make the choice to minimize the negative impact and begin repairing their credit at the earliest possible opportunity.

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