Often I am asked what the difference between forclosure and short sale is. How will it impact the homeowner? Why should a homeowner take the time to short sale?
Today I wanted to see if I can shed some light on these topics. Below are the impacts of both short sale and foreclosure.
Future Fannie Mae Loan - Primary Residence
• A homeowner who loses a home to foreclosure is Ineligible for a Fannie Mae –backed mortgage for a period of 5 Years
• A homeowner who successfully closes on a short sale will be eligible for a Fannie Mae mortgage after only 2 years.
Future Loan with any Mortgage Company
• Homeowner will need to answer yes to question C “have you had a property foreclosed upon or given title or deed in lieu in the past 7 years? This will impact your future rate.”
• There is no similar question regarding short sales.
Credit Score Score
• May be lowered anywhere from 250 to more than 300 points. Typically will affect a credit score for over 3 years. Only late payments will show, and after sale, mortgage is normally reported as “paid as agree” or “paid as negotiated” or “settled”.
• This can lower the score as little as 50 points if all other payments are being made. Short sale effect can be as brief as 12-18 months.
Credit History Foreclosure
• Will remain on public record permanently, and on a person’s credit history for 10 years or more. A short sale is not reported on a credit history.
• There is no specific reporting item for “short sale”. The loan is typically reported “paid in full, settled”
Current Employment Employers
• Have the right to check on employee’s credits that are in sensitive positions. In many cases, a foreclosure immediate reassignment or termination.
• A short sale is not reported on a credit report and is therefore not a challenge to employment.
• Many employers are requiring credit checks on all job applicants. A foreclosure is one of the most detrimental credit items an applicant can have and in most cases will challenge employment.
• A short sale is not reported on a credit report and is therefore not a challenge to future employment.
• In 100% of foreclosures (except in those states where there is no deficiency), the bank has the right to pursue a deficiency judgment.
• In some successful short sales, it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner.
In the end, both short sale and foreclosures impact a person both on a financial and emotional level. Reducing that impact is important for the future. If you have any additional questions or know someone who may be experiencing difficulty paying their current mortgage please call or email me and I would be happy to be of help.
Cidalia Mendonca Maukas
Keller Williams Realty