No homeowner on the day of signing for a new home imagines that he or she will face the foreclosure. But the economic downturn and the crash of real estate market jump towards the unparalleled number of homeowners into the distressing process of losing their homes. The foreclosure process can be long, stressful and severely damaging to the savings, assets and credit of homeowner. However, there is another option for some homeowners who are facing foreclosure. A short sale is a transaction in which the bank lets the delinquent homeowner to sell the home for less than what’s owed. The borrower finds an agent and puts the house on the market, often at a substantial discount. If the home sells, then the lender will recover the majority of what the homeowner owes. This saves the lender the expense of a foreclosure suit and the possible long-term cost of owning a hard-to-sell foreclosed home.
Benefits of short sale: – Here are some of the common benefits of the short sale;
- Short sale retains some in knowing that homeowner sold their home.
- Homeowner would not suffer the social stigma of the F word: foreclosure.
- Homeowner does not have to make the mortgage payments unless they choose to make them.
- Homeowners are in the control of sale not the bank.
- The home sale will be handled like any other home sale with respect and dignity.
- Homeowners can meet the new owners.
- Under the Fannie Mae guidelines homeowner will be eligible to buy another home in two years instead of five to seven years.
Buying again after a short sale: – If the payments of homeowner have never fall behind 30 days late and the lender does not require that homeowner pay back the loan then the Fannie Mae guidelines may allow the homeowner to buy another home immediately. Finding a lender who will fund that kind of loan is very difficult. It is easier to find a portfolio loan. If homeowners are current on their mortgage, then they can qualify for an FHA loan immediately as well, but lender requirements can be unnatural such as homeowners have to move more than 600 miles away.
Buying after a foreclosure: – The homeowners may be eligible to buy another home in five years with some restrictions if the home was their primary residence. Without restrictions the homeowners have to wait for seven years. If the homeowner is an investor and does not occupy the home, then he has to wait for seven years to buy with a Fannie Mae insured loan.
Affects on credit after a short sale: – A short sale may be considered to be a slighting mark on the credit of homeowner even though the credit bureaus do not show the word short sale on the credit report of the homeowner. The certain HAFA guidelines allow for no hot to credit and can show up as paid in full.
Affects on credit after a foreclosure: – Depending on the homeowner’s credit history and other guidelines Myfico.com shows two examples in which a credit score could fall 105 points to 160 points after a foreclosure. Generally, a foreclosure will remain on the homeowner’s credit report in the trade lines section for 7 years.
Credit reports after a short sale: – All lenders report short sales differently but with many reporting “paid in full for less than agreed,” and some report the short sale as a charge off. However the negative credit stays on the report of homeowner for seven years.
Credit reports after a foreclosure: – If a prospective employer runs a credit check on homeowner then his job application may be denied if he has a foreclosure on his record.
Deficiency judgments after a short sale: – Judgments are often negotiated between the seller and the short sale bank. In some of the cases such as California if the home is the personal residence of the homeowner and was financed through purchase money then there is no deficiency judgment.
Deficiency judgments after a foreclosure: – Banks are generally unwilling to negotiate deficiency judgments with the homeowner after a foreclosure. For example in California, according to the California Association of REALTORS, a deficiency judgment may be filed regarding a hard money loan if the lender forecloses under a judicial foreclosure versus a trustee sale or if the second loan is a hard money loan and the sale takes place as a trustee’s sale.
Loan application questions after a short sale: – Loan applications do not ask questions about a short sale. The homeowners may report that they sold their home.
Loan application questions after a foreclosure: – The homeowners are required to answer the question: Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years. If the bank sees that the homeowners have had a foreclosure then their loan most likely will be denied.