FORECLOSURE VS. SHORT SALE
Foreclosure Successful Short Sale
Future Fannie Mae Loan â€“Primary Residence (effective May 21, 2008) A homeowner who loses a home to Foreclosure is ineligible for a Fannie Mae backed mortgage for a period of 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 Fannie Mae Loan â€“Non Primary (effective May 21, 2008) An Investor who allows a property to go to
Foreclosure is ineligible for a Fannie Mae backed investment mortgage for a period of 7 years.
An investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed
investment 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 that asks â€œHave you had property foreclosed upon or given title or deed in lieu thereof in the last 7 years?â€ this will affect future rates.
There is no similar declaration or question regarding a short sale (at this time).
Foreclosure: Credit Score Score may be lowered anywhere from 250 to over 300 points. Typically will affect score for over 3 years.
Short-Sale: Only late payments on mortgage will show and after sale mortgage will be reported as paid or negotiated.This will lower the score as little as 50 points if all other payments are being made. A short saleâ€™s affect can be a brief as 12 to 18 months.
Credit History Foreclosure will remain as a public record on a personâ€™s credit history for 10 years or more.
Short sale is not reported on a credit history. There is no specific reporting item for â€˜short saleâ€™. The loan is typically reported â€˜paid in full, settledâ€™.
Generally speaking, a foreclosure will prevent eligibility for 5 years with conventional financing (Fannie Mae / Freddie Mac) and 3 years with an FHA-backed loan.
Every situation is unique and you should discuss yours with a loan professional. If you think I can be of service, don't hesitate to get in touch.
First, I would suggest you talk to your credit union, bank or mortgage broker and ask them their opinion. My understanding is generally it takes 5-7 years because of the time it takes to get it off your credit report, but it really depends on the lender's policy and may vary with the circumstances. If lenders start taking into account the unusual market conditions we've had the last few years, and they're eager to make loans, the time may be shorter or they may make the loan with a higher interest rate to compensate for what they perceive as added risk. It also may depend on your relationship with the lender. For example, if it's a credit union or bank with whom you've otherwise had an excellent credit history, they may make you a loan within a shorter time. Another alternative may be a seller that's willing to finance your purchase and make you the loan themselves. Good Luck!