I have written previous articles defining short sales and foreclosures. I will now compare the consequences to a homeowner of a foreclosure versus those of a successful short sale.
Future Fannie Mae Loan–Primary Residence
- A homeowner who loses a home to foreclosure won’t be eligible for a Fannie Mae-backed mortgage for 5 years.
- A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae-backed mortgage after only 2 years.
Future Loan with any Mortgage Company
- On any future 1003 application, a prospective borrower will have to answer YES to question C in Section VIII of the standard 1003 which asks, “Have you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?”. This will affect future rates.
- There is no similar declaration or question regarding a short sale.
Credit Score
- With a foreclosure, a person’s credit score may be lowered anywhere from 250 to over 300 points. Typically, this will affect the score for over 3 years.
- With a short sale, only late payments on mortgage will show. After the sale goes through, the mortgage will be reported as paid or negotiated. This will lower the credit score by as little as 50 points if all other payments are being made. A short sale’s effect can be as brief as 12 to 18 months.
Credit History
- Foreclosure will remain as a public record 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’.
As you can see, it’s better to have a short sale than a foreclosure. If you have any questions regarding short sales or foreclosures, please contact me at steven@stevenhong.com. I will be glad to help you.
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