If you’re a homeowner who is experiencing difficulties paying your current mortgage, or are finding yourself forced into the foreclosure process, you may wonder if it’s better to Short Sale your home or continue on the foreclosure path.
Depending on your specific circumstances, there are certainly advantages and disadvantages to both.
While you can stay in their property for up to four months during the foreclosure process before being forced to vacate, essentially rent free, that alone does not mean a foreclosure is better.
With a Short Sale, generally listed for sale through MLS, home buyers make appointments to view your home, Short Sale agents may hold open houses and, in general, your life will be disrupted, all in the hopes that a buyer will quickly buy your home.
How is Your Credit Affected in a Short Sale?
If you are more than 59 days late when you complete your Short Sale, the effect of the Short Sale on your credit report could be identical to that of a foreclosure. The mark on your credit will appear as a pre-foreclosure in redemption status, which could result in a loss of 200 to 300 points. This means if your previous FICO score was 720, it could fall from 520 to 420.
Fair Isaac released a report how your credit scores are affected, whether you does a short sale or foreclosure. Fair Issac says the average points lost on a FICO score are as follows:
- Your mortgage payment is 30 days late: 40 to 110 points
- Your mortgage payment is 90 days late: 70 to 135 points
- Your home is in Foreclosure, Short Sale or Deed-in-Lieu: 85 to 160
- You have declared Bankruptcy: 130 to 240
How is Your Credit Affected in a Foreclosure or Deed-in-Lieu of Foreclosure?
If you’re past the point of selling your home with a Short Sale, you’ll probably take a hit of 200 to 300 points, depending on overall condition of your existing credit. This means if your FICO score before foreclosure was 680, it could drop as low as 380.
How Long Do You Need to Wait Before You Can Buy Another Home
After Foreclosure or Deed-in-Lieu of Foreclosure
If you want to buy a new home after foreclosure, you may end up waiting about 24 to 72 months before a lender will offer any kind of interest rate that you can afford. In regards to your finances, it might be better to wait the full 5 – 7 years before signing up for a new mortgage or loan.
After Short Sale
Some agents say the good news for short sale sellers is the wait is much shorter before buying another home, and Fannie Mae guidelines in 2008 adopted new procedures.
Can you buy again in less than two years? Consensus seems to be, “No.” Fannie Mae guidelines now require only a 24 month waiting period, which good news for homeowners.
FHA adopted guidelines in 2010 saying if you are current and complete a short sale, you may qualify to immediately buy another home. And Fannie Mae guidelines allow you to immediately apply for a new loan to buy another home if you kept the payments current, had no delinquencies exceeding 30 days and did not agree to repay the debt relief.
So What’s the Right Decision? Foreclosure or Short Sale?
If you’re a seller trying to decide whether to let a home go through foreclosure versus attempting a Short Sale, from what I’ve seen in my own brokerage, there is less damage to a credit report after a Short Sale involving late pays than a foreclosure.
Additionally, another advantage is the ability to buy another home within 2 years over the 5- to 7-year waiting period required for foreclosures. And there are other Short Sale advantages over a foreclosure.
If you’re still not sure, the best thing you can do is contact a Short Sale Specialist before making a decision.
Sincerely,
Mark Shandrow
Real Estate Broker
office 562-364-9505 ext 100
mark@shandrowgroup.com
Shandrow Group
3970 Atlantic Ave., 210
Long Beach, CAÂ 90807
follow my story at http://markshandrow.com
