How A Short Sale In Real Estate Could Affect Your Credit Score

 

Real estate sales dropped dramatically in 2009 Many people left with nothing after the fall in home prices. Instead of making a profit from real estate, they were left with empty pockets. Real estate prices fell, financing was difficult to obtain, people lost their jobs, and there was a glut of short sales Realtor Sedona and foreclosures.

Many home owners have stopped making payments or couldn't afford them. Many people lose their jobs, which can ruin credit histories and make it difficult to refinance. Many were unable or unwilling to find financing options with their lenders due to declining credit ratings.

There are three options: Sell the property before foreclosure is complete, Give a deed in lieu of foreclosure to the lender or Let the property go into foreclosure. Buyers and investors may be able to negotiate short sales with lenders if the property's value is less than the outstanding mortgage balance.

Short Sale Basics:

If the lender agrees that the loan amount is less than what the homeowner owes, this type of sale may be possible. This happens because the property doesn't have enough equity to allow it to sell or pay the costs. Not all lenders are willing to negotiate a short sale.

Home owners can't just decide to sell their home on a short sale. In the past, lenders would not consider such a sale if the payments were current. However, the market turmoil has led to changes. Lenders will usually be open to negotiations if the home payment is in arrears. However, sellers should realize that lenders may tap into cash assets.

A short sale is usually advertised through MLS (Multiple Listing Service). Open houses may be held by real estate agents to allow potential buyers to see the property. Owners can also be offered low-ball offers. A seller can be forced to leave their home when an agent calls. Strangers may also visit their home and other possessions in the hope of selling their home.

Sellers often wonder if this sale is more damaging to their credit rating than foreclosure. According to state laws, sellers can stay on the property rent-free for up to four months before being evicted. This does not necessarily mean that foreclosure is better than a short-sale.

How does your credit rating compare?

Sellers can take a huge hit to their credit reports by going through foreclosure or giving the lender a deed in-lieu foreclosure. This is if they are more than 30 day behind on payments. FICO scores will lose points for the following reasons:

Foreclosure, Deed in-Lieu of Foreclosure

Both of these options can have an equal impact on credit rating. The seller's credit score can take a hit between 200 and 300 points depending on its condition. Example: A seller's FICO score might be 650 before foreclosure. It could fall to 350.

Short Sale Effects:

If the seller has not paid the mortgage payment in full within two months, their credit score will be affected the same way as a foreclosure. A pending foreclosure status will be indicated on the credit report. This could lead to a loss of 200-300 points. Example: A FICO score can be reduced from 700 to 400.

Can I buy another home?

Foreclosure, Deed in-Lieu of Foreclosure

Sellers who wish to buy another home after foreclosure must wait between 24 and 72 months depending on their credit score.

Enjoy a Short Sale

A seller may be eligible for an institutional loan to purchase another home depending on their FICO score. It is unlikely that someone can purchase a home with a low interest rate within two years. Fannie Mae guidelines also require 24-months' seasoning.