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Fannie Mae

May 17
0

How Does a Short Sale Affect Your Credit?

By | Debt, Fannie Mae, Fraud Protection, Home Buying, Homeowner

In golf, the lower your score, the better. In bowling, a perfect score is a 300. When it comes to credit, the scores have to get much higher before you can win the game. Your credit score is the number that dictates your credit worthiness on a scale from 350 to 850, using a number of factors. Among them is your bill-paying promptness, your history of late payments and the credit card debt you’re carrying as compared to the card’s credit limit.

Your credit report contains additional information, such as the way your debts are handled. Some of the possibilities are: paid in full and on time or settled for less than the full amount. The report is important because it identifies areas where you’re financially vulnerable. In the case of a short sale, your vulnerability could be in a poorly-written settlement that leaves you liable for the difference between the mortgage balance and the settlement amount. That liability will appear in your credit report.

A short sale is a situation in which a lender agrees to close an outstanding mortgage for less then the full amount owed. This usually comes about because the real estate’s value has dropped below the balance due on the mortgage, and the property owner(s) can’t make regular payments. One of its effects, beyond the settlement terms, is its impact on your credit score and your credit report.

A short sale reduces your credit score by 100 to 200 points and credit scores after a short sale hover around the range of 420 to 520. People with high credit scores are particularly hard-hit when they go through a short sale, probably because a high score carries expectations of financial stability and responsibility. Most of the drop comes from the history of late payments and the short sale itself. A rule of thumb regarding points lost on your credit report is that you’ll get:

  • An 85 to 160 point drop for a short sale.
  • A 40 to 110 point drop if your mortgage payment is 30 days late.
  • A 70 to 135 point drop if your mortgage payments are 90 days late.

Those who are forced into a short sale may worry about the impact on their credit, but the impact on your credit from a short sale versus a foreclosure makes the short sale a better choice. A buyer who is current (has no late payments) can qualify for a loan within two years after going through a short sale while it can take seven years or longer after a foreclosure. In the credit score game, a short sale is a better bet than a foreclosure every time.

May 10
0

Short Sale vs. Foreclosure

By | Credit Repair, Debt, Fannie Mae, Home Buying, Homeowner

In these harsh economic times, there are situations in which you simply have to bite the bullet and do what needs to be done. If you are sinking paycheck after paycheck into a mortgaged home that is not worth its value anymore, it’s time to cut your losses. Unfortunately, ridding yourself of a burdensome property is not as easy as Monopoly would lead you to believe. Do not be overly distraught just yet, though. There is an alternative to foreclosure that you should consider.

There are several reasons why an individual may be forced into either a short sale or a foreclosure. Unemployment, a nasty divorce, or lack of funds for whatever reason can lead you to such a point. Regrettably, it’s a difficult situation to stop once it has started; the lender tends to notice pretty quickly when payments have stopped coming in. Law requires that you get a warning of some sort, but by that point, your options are limited.

Foreclosure occurs when the bank takes back the property. This means that you have failed to make payments on your mortgage, and as collateral, the lender strips you of all property rights and takes the home from you. The long-term effects of foreclosure can be painful as well, affecting your credit and preventing you from purchasing another home for five to seven years. It is not uncommon for prospective employers to run credit checks as well, and a foreclosure on your record may cost you a much needed job opportunity.

A short sale, when possible, is a much better alternative. A short sale is when you sell the home for less than what you owe. The lender must approve the short sale, but because there are so many properties in foreclosure and programs supported by the government to help you through the short sale process, this can be a positive alternative.  You are still forced to sell your home, but at least this way, it is on your terms.

Keep in mind that the lender has to agree to it first, and you may owe any deficits, depending on the agreement. This a better option than foreclosure, in that as long as you were never behind on your payments, you can purchase another home immediately. Although your credit scores will still drop, the term “short sale” will never appear on your credit report the same way a foreclosure would.

It sounds like a catch-22 but when forced into such a situation, you have to choose the lesser of two evils. Although a short sale will still hurt your credit score, there are ways to recover. It might take a few years, but with the right strategies, you can rid yourself of debt, raise your credit score, ensure that you are in never in such a position again and buy a new home much sooner.

Apr 06
0

Rates Are Low, But Can You Get a Mortgage?

By | Credit Repair, Credit Reports, Credit Scores, Debt, Fannie Mae, Home Buying, Homeowner, Loan, Mortgage, Real Estate, Your Credit

Mortgage rates are bouncing off of 40 year lows.  Seems like the best time to buy a house or refinance.  Not so fast – there is a catch.  You have to qualify first!

Before the recession, qualifying for a mortgage was not much of an issue.  The overall standards were pretty low.  If you had a low credit score, you could still qualify for financing.  Your credit score did not necessarily determine if you qualified more so than the rate that you qualified for.   People with higher credit scores received lower rates and people with lower credit scores received higher rates.  But just about everyone qualified for something. 

The lending environment today is vastly different.  Only those that meet the highest qualification standards can get financing.  According to the Federal Reserve, about seventy five percent of those that apply for financing are qualifying.  Of course, the number of those applying for loans has decreased significantly. 

According to Fannie Mae and Freddie Mac, the average credit score for loans that they finance has risen to 760.  It was 720 just a few years ago.  For FHA loans, the average score has increased to 700 from 660.

The subprime market has just about disappeared altogether.  Before the recession, subprime lenders routinely made loans to borrowers with credit scores below 620.  Today, it is very difficult to find lenders willing to make these loans. 

If you are thinking about financing, you should check your credit score.  If your score is below some of the qualifying averages, take proactive steps to improve your credit scores.  Remember, about eighty percent of the credit reports contain errors.  With a little bit of effort, you might find that you do qualify for a loan at the current rates after all.

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