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What Are The Real Differences Between A Short Sale Or A Foreclosure?
Author : Olivia Blakely
Submitted : 2011-12-25 23:40:35 Word Count : 953 Popularity: 0
Tags: short sale, foreclosure
The question of consequences really relates to the issue involved. For example, if a future homebuyer hopes to get a Fannie Mae mortgage for a future primary residence home purchase, a prior foreclosure occurring within the preceding 5 years will make that borrower ineligible for a Fannie Mae mortgage. The same cannot be said for a prospective buyer who sold their property utilizing a short sale, is the short sale seller will qualify for a Fannie Mae backed loan on a primary residence after only 2 years.
For non-primary residences, the number of years required for eligibility on a Fannie Mae loan is even longer for buyers who've foreclosed on a previous home. The time you have to wait is enlarged from five to 7 years to qualify. If you successfully negotiated a short sale, and would like to buy another non-primary property, you will only be required to wait the same two-year time you would have waited for a primary residence.
If you want to get a loan through a mortgage company, and you have a prior foreclosure on your record, you will be required to answer "yes" to question C in Section VIII of the standard 1003 application which asks if you have had property foreclosed on or given title or a deed in lieu of foreclosure in the prior seven years. Even though you can still apply for a loan with a mortgage company, your interest rates will increase dramatically. If you'd negotiated a successful short sale instead of a foreclosure, there would be no required declaration with regard to a short sale, so your interest rate should remain relatively unaffected.
One big "hit" consumers are concerned with is the affect to their credit score as a result of a foreclosure or a short sale. With a Foreclosures, you're going to experience a big impact, expect to see your score drop anywhere from 250-300 points. The damage to your credit score will generally remain on your credit history and negatively impact your score for over three years. A successfully negotiated short sale, on the other hand, will list your late payments on the mortgage. It will be reported as "paid" or "negotiated", this will lower your points by as little as 50 points, not the three hundred a foreclosure would, assuming you were current on the rest of your payments during the period of your short sale. This drop can affect your credit score for as little as one to one and a half years.
How do your credit score and your credit history differ? Your score is fluid, your history will remain intact on your credit report, for any creditor to observe, for a specified number of years, even if your score has improved. A foreclosure remains public record and a fixture on your credit report for at least ten years. A short sale is not reported on your credit history, just the late payments on your mortgage. There isn't a specific reporting item for "short sale", as the loan is typically reported as "paid in full, settled".
You may not have even thought something like a foreclosure could affect your security clearance, but it can and it does. Surprisingly, a foreclosure is the most challenging issue against a security issue apart from a conviction of a serious misdemeanor or felony. If a client has a foreclosure and is a police officer, in the military, in the CIA, Security, or anyone else requiring a security clearance will almost always be revoked and the position will be terminated. If you successfully negotiate a short sale, that fact, in and of itself, does not challenge most security clearances.
What about your current employement? Employers have the right to check your credit on a regular basis assuming your position involves sensitive subject matter. A foreclosure is often considered grounds for immediate reassignment or termination. A short sale, on the other hand, is not reported on your credit report, and eliminates the challenge to employment.
If you decide to make a change in employment, or don't have any choice but to change employment, you need to consider how a foreclosure or short sale might affect that future employment. A foreclosure exposes you to early challenges as a lot of employers use a credit check for most new applicants. Generally, a foreclosure that has negatively impacted your credit will be a challenge to employment. Again, you should remember, a short sale isn't reported on your credit report, and will therefore not prove a challenge to employment
A major factor for most homeowners faced with foreclosure or short sale is the deficiency judgment. With 100% of foreclosures (unless you happen to live in a state that has no deficiency), the bank can pursue the homeowner for the deficiency. Some successful short sales actually work with the lender and get them to agree to give up the right of pursuing the homeowner for the deficiency. The deficiency amount should also be considered. In a foreclosure, you must to go through the REO process if your house does not sell at auction. An REO typically results in lower sales prices and a longer period of time that property may just sit on the market, especially in depressed sales markets. Unfortunately, all that slow down and lower sales price could mean a higher deficiency judgment for the homeowner. A properly handled short sale is more likely to get a price much closer to market value and will generally be better than an REO sale, and should yield a smaller deficiency, which means the banks will generally be more willing to negotiate with you.
Author's Resource Box
Olivia Blakely is a freelance writer specializing in legal special interest articles for Short Sale Lawyers and Las Vegas Record Sealing Attorneys.
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