Short sales do not have to kill your credit.
by Evan Vanderwey on 04/08/10 at 5:11 pm
If you’re considering doing a short sale on your home or former home, then I may have good news for you depending on how you’ve handled your situation until now.
By now you have likely been given the news that a short sale is similar to a foreclosure in how it affects your credit standing. This means the earliest you would be able to be financed for a home purchase is three years from the date of the close of sale of your home if you sold “short.” On your credit report, the mortgage company would have notated the account with one of two phrases: “paid legally” or “settled for less than full balance.”
When I see a note like that, I can generally assume that the client is three years (from the date of sale) away from getting another mortgage approval.
But not always!
A client called me two months ago and applied for a mortgage pre-approval for the purchase of a home here in MI. They moved here almost two years ago from South Carolina when he was given a transfer by his company. He rented a home here for his family and listed his home in SC before he left. After getting three offers on the home, all well below the price he was asking and below the amount he owed, he applied with his bank for a short sale. In the meantime, he kept making his payments to them every month without fail.
The short sale took 11 months to close. 11 months! But he made his payment every month on both the rental in MI and his old mortgage in SC. His credit report remained perfect.
Finally, a year after listing his home (and one year ago) he closed. He never missed a payment through the whole experience.
His credit score is over 750 today.
He qualifies for a mortgage today for two reasons:
- He moved to a different area for work.
- He never missed a payment through the process.
So, if your move has anything to do with your job (lesser pay or change in location), and if you’ve made payments on time throughout the process, then a short sale will not affect your credit all that much.
In my next post I’ll explain what lenders are trying to work against in these short-sale rules.
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