Short Sale, Foreclosure or Deed-in-Lieu of Foreclosure?

Short Sale, Foreclosure or Deed-in-Lieu of Foreclosure?

If faced with these three options when you need or have to move, you should know the impact of each.

All three can ruin your credit rating. It might not happen right away, but sooner or later, unless the bank has specifically agreed not to report the short settlement, the bank may report it as a Score Factor Code 22. That score factor relates to delinquencies, derogatory records and collections or settlements.

Drawbacks to Foreclosure
1. The right of home ownership is stripped away.
2. Homeowners return to the rental market as a renter.
3. The bank may post a Notice of Public Sale on your front door.
4. Your credit takes a nose dive, and a foreclosure will remain on your credit report for 10 years.
5. Under Fannie Mae & Freddie Mac guidelines, without extenuating circumstances, you will not be eligible to buy another home for 7 years.

Benefits for Short Sale
1. You won't suffer the social stigma of the foreclosure.
2. No mortgage payments to make, unless you want to buy again and choose to make them.
3. You can meet the new owners.
4. You will be eligible, under Fannie Mae guidelines, to buy another home in 2 years instead of 5 to 7 years.
5. If your credit report does not reflect a 30-day+ late pay, you will be eligible to buy another home immediately with a legitimate reason for entering into the short sale. (i.e. loss of job or spouse)

Drawbacks to a Short Sale
1. Waiting for the bank to respond to an offer is frustrating.
The bank will want to examine personal records such as tax returns, bank accounts, assets and liabilities, in addition to asking for a hardship letter from you.

2· There is no assurance the bank will accept a short sale offer.

3. The derogatory credit will remain on your credit report for 7 years.

4. Waiting periods after Short sale, Foreclosure, Deed-in-Lieu or Bankruptcy. Bankruptcy requires 4 years from the date of discharge but may be accomplished after 2 years with 20% down payment and documentation of extenuating circumstances.

5. Foreclosures will require 7 year waiting period but may be done in 3 years with 20% down payment and documentation of extenuating circumstances.

6. Short sales and Deeds-in-lieu will require 4 year waiting period but may be done in 2 years with 20% down payment and documentation of extenuating circumstances.
What are acceptable extenuating circumstance? You lost and replaced a job with lower income, Loss of a spouse, Forced to relocate for employment and Extended period of illness are all legitimate, documentable reasons that an underwriter will take into consideration when applying for a new mortgage. Underwriters are required to investigate any and all reasons for the problems that have you put you into problems in the past and insure the investors that the likelihood of recurrence is minimal. You can not enter into any of these solutions lightly and under or misinformed to the ramifications.