Short Sales...where to start! By definition short sale means that the value of a home is less than the total loans on the property. In a short sale, the bank forgives the debt with a few qualifying factors (call me or email me if you are curious). The sellers/homeowners of a short sale home do not pay commissions, closing fees or other associated costs, the bank approves the offer and then pays the costs associated. The process requires patience and you do have quite a bit of time to get the home sold.
If you have missed a payment, the bank will file a Notice of Default typically once you are 3 months late on the mortgage. In that document, the bank sets a date for 3 months later for a Trustees Sale, more affectionately called, Sold on the Courtroom Steps. That gives a seller 6 months from the 1st missed mortgage payment to either sell the home or bring the loan payments current. After the Trustees sale the home is considered "foreclosed" and the credit implications are vastly different from a short sale.
We are seeing credit dings that range from 50-100 points for a short sale and up to 280 points for a foreclosure. The credit ding for a short sale is on your credit report for up to 2 years and up to 5 years for a foreclosure. If you want my professional forecast, I think lenders are going to work on minimizing the credit impact to consumers who have had to go through a short sale. The reason I think this is that banks need to put consumers in a position to purchase. The sooner they figure out how to navigate the ding on the credit report, the sooner bankers will b e able to lend money to a consumer with a short sale in their history.
Tomorrow I will be blogging about the short sale process from listing to close. I get a lot of questions about this so I hope someone out there finds this useful.
Wow, 280 pts. for a foreclosure. That ruins someone's credit big-time. Do they use both peoples' credit when a couple buys a home, or do they just use the better credit store of the 2?
ReplyDeleteGreat question! Yes, foreclosure is an ugly credit option. When a couple buys a home, typically one will have stronger credit. In my experience,lenders will look at the middle scores (there are 3 scores for everyone, low, mid and high) for both people if both are going to be on the loan. Lenders will work with the higher of the scores while also navigating other details from the credit report. If one person has really low scores they will try to get the underwriting approval with just one person qualifying on the loan (the higher credit applicant). All of this depends on mitigating factors like debt ratios, income, etc. Lenders want to loan the money, that's their business, so they do try to find workarounds for all kinds of credit issues, and yes almost everyone has credit issues of some kind. In today's underwriting "climate" lenders approve buyers based upon the highest possible payment that the borrower might incur during the loan term. This practice protects you (and the lender) from future financial challenges that could cause you to default on a payment and potentially lose your home. This was not the practice in place a few years ago, hence all of the issues we are currently experiencing... If you have any other lender specific questions, feel free to email me and I will get answers to questions specific to your situation.
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