How Will A Short Sale Affect Your Credit?
Short Sales have been heralded by many as the best solution for avoiding foreclosure, but how will they affect your credit and your ability to buy another home?
For those of you still unclear on exactly what a short sale is, a short sale means selling your home for less than the mortgage balance owed on it. This is of course dependent on your mortgage lender approving the sale. However many short sales are being completed every day. This is can save the lender a lot of legal fees and holding costs as well as reducing their liability and allowing them to recapitalize on what they can quickly. Exactly how much less than your loan balance you will be able to sell for can vary widely, but many homeowners have seen their mortgages settled at as low as 30-50% of the outstanding amount.
When facing imminent foreclosure and wondering what the effects of a short sale will be on your credit it is worth also weighing your other options. Doing nothing is clearly not an option. Why let your property be taken from you without even trying to take advantage of the help that is available?
Loan modifications have certainly caught their share of the news headlines. Unfortunately a few bad apples have resulted in most of the third party loan modification companies being regulated out of business. While banks and mortgage lenders continue to drag out the process and in many cases have put homeowners into modifications that offer worse terms than they already had.
Other homeowners are being talked into bankruptcy as a solution for avoiding foreclosure. However, increased restrictions have rendered bankruptcy useless to many. Those that do qualify face a decade of poor credit that will not only seriously limit their ability to be able to purchase another home but can prevent them from getting jobs and are frequently the source of family break ups.
In contrast opting for a short sale can get you out from under the debt permanently and can actually allow you to buy another home far faster than you imagined possible. Whereas letting your home go to foreclosure or filing bankruptcy which can mean many years before you qualify for a new home loan, those who choose a short sale can get approved for a new mortgage in 36 months or less.
According to HUD (the department of Housing and Urban Development) homeowners who are current on their loans at the time of the short sale can even immediately qualify to purchase a new property without any waiting period. This ruling actually calls for homeowners to have paid their mortgage and installment debt on time for the last 12 months. Though there are exceptions. Lenders are able to make exceptions to these rules providing it can be shown that the default was a result of circumstances beyond the borrowers control and that they had a satisfactory credit rating prior to the incident. This could be a death in the family, illness, loss of a business due to economic factors beyond your control or a natural disaster. Obviously most homeowners can claim one of these circumstances.
Clearly for those who are currently behind on their mortgage payments, owe more on their mortgages than their home is worth, are frustrated by how cheaply other similar properties are being sold for and who want to make the best move for their credit short sales certainly appear to be the most attractive option.
For a more detailed no cost consultation of how a short sale can affect your credit contact us.