| Choosing a Short Sale
A short sale of a house is when the
house is sold for less than what is owed on the
mortgage. For this to happen, the lender has to
agree to accept less money than what is owed. Not
all lenders will agree to this. Some might be more
inclined to agree if you are late on your payments,
although part of that agreement might mean they tap
into any cash resources you might have. Others may
ask you for a hardship letter, preliminary net
sheet, and proof of income and assets. Short sales
happen because there is sometimes not enough equity
in a home to pay all of the costs of the sale, when
sold. This includes paying off the mortgage,
broker's fees and other fees associated with the
sale.
Short Sales and Your Credit
Score
Many people think that, because
they are avoiding foreclosure by short selling their
house, they are not going to hurt their credit. This
is not the case. If you short sell your house, you
will take a huge hit on your credit report. In fact,
your FICO score will go down by the same amount for
a short sale as a foreclosure. A short sale will
appear on your credit report as a pre-foreclosure in
redemption status. As a result, you will lose
between 200 and 300 points on your FICO credit
score. In short, you cannot salvage your credit by
short-selling your home. You can try, however. There
have been cases of sellers requesting that lenders
do not report adversely to the credit agencies, and
lenders agreeing to do this, but those cases are few
and far between.
Buying Another Home
Although there is no credit
advantage over foreclosure with a short sale, there
is an advantage when it comes to buying another
home. If your house is foreclosed upon, you must
wait a minimum of two to five years before
attempting to buy a new house. Although rumors
abound that a new mortgage with a good interest rate
can be had only 18 months after a short sale, this
is not the case. However, the truth is not all bad,
either: Short-sellers need only wait for two years,
according to Fannie Mae guidelines. It is a good
idea, however, to consult a real estate expert
before thinking about buying another home after a
short sale. Remember that a short sale means you
will not be gaining any money after the sale of the
home, so you will have to save up the money for a
down payment on your new home. |
