A lot of homeowners in a financial bind are worried about their credit and it is important to understand what is going on with your credit report. Some of the typical concerns are: “How will a short sale look on my credit report?”, “Is there anything I can do to fix my credit?” and lastly “When will I be able to buy a house?”
Let’s start with “How will a short sale look on my credit report?” How a short sale affects your credit report varies on each situation. Fair, Isaac and Company, who developed the FICO score, was interviewed by CNN Money and shed some light on just how many points each missed payment can amount to. If you have missed a mortgage payment for thirty days it is very likely that the bank has reported the past due balance to the credit reporting agencies. Obviously missing two payments is very different than missing four or five. The article gives you an average for each time period you are delinquent but also admits that it varies. It is not a good idea to go off of just this average of course. Craig Watts, a spokesperson for Fair Isaac, agrees that one thing that is generally true, once you have missed at least three mortgage payments the late fees it is unlikely that you will be able to get out of delinquent status. Regardless if are able to come up with the amount of three payments the late fees will be so much more than you can handle. Unless you are able to replace your income at this point, you will continue to hurt your credit. How does this compare to foreclosure? It really depends on how the bank reports your short sale.
This leads us to our next question, “When will I be able to buy a house”? In our experience it gets reported as settled debt which can allow you to buy a house in two or three years. A short sale will fall of your credit report after sometime but a foreclosure will stay on maybe twice as long. With a short sale your wait period can be reduced down to two years versus seven or eight with a foreclosure. FOX business posted some helpful information about how long your wait period must be and what your corresponding down payment must be. With a two year wait you would need a twenty percent down payment versus waiting seven years in which case you might only need a ten percent down payment. However three years after the closing date of your short sale you can qualify for an FHA loan again and for some buyers their down payment can be as low and three and a half percent.
Lastly FOX business also gives advice on how you can try to repair your credit after a short sale. They give three general steps. First of all knowing what is on your credit report can help significantly. Simply knowing what is on your report and taking care of any discrepancies can help. You may be Nancy A. Smith but Nancy E. Smith’s bank incorrectly reported her defaulted credit card and it ended up on your report. Also there can be debts you were not aware of such as medical collections. Secondly, you need to start managing all your other accounts effectively. This does not necessarily mean that you need to close all your accounts; you will want to keep them open. A maxed out credit card does you no good as an open account so try to make regular payments and get it to a low manageable balance. Lastly, it is recommended that you open a secure line of credit but you will have to put down a deposit. This will give you the opportunity to have an account you pay regularly that will report positively to the credit bureaus. Make sure not to over extend yourself on this new credit line either.
Now that you have a better picture of how your credit will look after a short sale are you ready to take the next step? Contact Oyezz for more advice or if you are ready to start the short sale process and need to know how. Just click the link and you can receive free information on your options or contact one of our helpful and knowledgeable team members.