Because the term “short sale” is often not expressly stated, some interpret this as meaning that a short sale is a lesser offense. The truth is, decision makers in the lending industry know that a short sale is no different than a foreclosure or deed-in-lieu. Here are two excerpts from a lender's underwriting guidelines.
The following items are subject to individual evaluation, no matter how high the credit score:
- Bankruptcy
- Foreclosure
- Deed-in-lieu
- Short sale
- Judgments
- Collections
- Charge-offs
- Tax liens
-- and --
Foreclosure
- None in past 5 years with minimum 3 active trade lines more than 24 months old, with no late payments or derogatory credit after the foreclosure.
Definition of Foreclosure
- Any 120-day mortgage late within the last 24 months, any notice of default or settlement on a real estate secured trade line (short sale), any deed-in-lieu or forbearance agreements.
To the homeowner with a mortgage he can no longer afford, the decision to voluntarily vacate through a short sale or be forced out by foreclosure can be agonizing. The sterling credit reputation it may have taken a lifetime to establish is gone with a single event.
Renting After a Short Sale
Most landlords with whom I’ve spoken state that, due to the widespread credit meltdown, they would view a foreclosure as not particularly onerous -- provided that all other credit obligations were met on time. A credit report riddled with "derogs" over a broad category of obligations would be viewed negatively.
This article is intended not as a judgment of the motive or character of a homeowner in distress, but to present the facts so that no one is misguided.
Facts About Short Sales and Credit Ratings
- There’s no credit preservation advantage to short sale over foreclosure.
- The nation’s two largest mortgage investors, Fannie Mae and Freddie Mac -- with certain exceptions -- won’t lend to you again for five years (foreclosure) and two years (short sale).
- A consumer's FICO score will take a huge hit either way until responsible credit behavior supplants the foreclosure / short sale over a period of time.
Catherine Coy is licensed in all 50 states for conventional, commercial, FHA and reverse mortgages.
