Before you jump to the conclusion that a foreclosure is your only option, or the easiest/quickest way out of a difficult and stressful financial situation...think again! Here's #1-5. Check back for #6-10! A short sale (short sales allow a homeowner with a legitimate hardship to sell their property for less than the balance of their mortgages) can be a viable alternative to foreclosure and one that bears serious consideration. Consumers often don't realize that the ramifications of a foreclosure are very different than those of a short-sale.
Reason # 1 - Future Fannie Mae Loan - Primary & Non-Primary Residence
A homeowner who loses a home to foreclosure is ineligible for a Fannie Mae backed mortgage for a period of five years vs. a homeowner who negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage for a primary residence after two years. An investor who allows a property to go to foreclosure is ineligible for a Fannie Mae backed investment mortgage for seven years vs. an investor who successfully negotiates a short sale will be eligible for a Fannie Mae backed investment mortgage after only two years.
Reason #2 - Future loan with any mortgage company
On any future 1003 application, a prospective borrower will have to answer YES to the question "Have you had property foreclosed upon or given title or deed in lieu thereof in the last seven years?" - this will affect future rates. There is no similar declaration or question regarding a short sale.
Reason #3 - Credit Score
In a foreclosure scenario the homeowners credit score may be lowered anywhere from 250 to 300 points - typically affecting the score for over three years. In a short-sale situation only the late payments on the mortgage will show and after sale mortgage will be reported as paid or negotiated. This will lower the credit score as little as 50 points if all other payments are being made. The effect of a short sale can be as brief as 12 or 18 months.
Reason #4 Credit History
A foreclosure will remain as a public record on a person's credit history for 10 years or more. Whereas, a short sale is not reported on a credit history. The loan is typically reported as "paid in full, settled."
Reason # 5 Security Clearances
Outside of a conviction for a serious misdemeanor or felony, a foreclosure is the most challenging issues against a security clearance. In almost all cases, if a homeowner has a foreclosure and is a police officer, is in the military, CIA or any other position that requires a security clearance the clearance will be revoked and their position will be terminated. A short sale on its own does not challenge most security clearances.
"How to Buy Short Sales & Avoid Foreclosure" free seminar Oct. 27th at UCI University Club - 801 E. Peltason Irvine. 6:30pm - 8pm.
