The New York Times has posted an article that discusses how a foreclosure and a short sale differ in the long run when it comes to how your credit score is impacted by losing a home. While economic factors may have been the cause of losing your home, a bad credit score can impact several areas of your life such as getting a job and renting.
A short sale where the balance is forgiven and nothing is recorded in public records can be quick and close to painless for your credit score’s recovery. As long as you pay your bills on time your score can be brought up in less than a year. Your score won’t be outstanding, but it will definitely help.
However, a foreclosure or bankruptcy can haunt your credit score for years. It takes about 3 years after a foreclosure or bankruptcy to pull up your credit score to even just a middle of the road score. A homeowner with close to a perfect credit score who undergoes a foreclosure will have to work 7 years to restore their credit.
But if someone has gone through foreclosure and still has a mountain of debt and not enough income, bankruptcy is worth considering, said Tracy Becker, the founder of North Shore Advisory, a credit-restoration company based in Tarrytown, N.Y. Sure, it will be another hard blow to your credit rating – but your credit most likely is already “wrecked,” at least for now, she said.
Fannie Mae, Freddie Mac and the Federal Housing Administration have all set guidelines about how long a borrower must wait before getting a new mortgage following a “significant derogatory event.” There are other areas that fall under that guideline, such as a serious illness or divorce, but the wait after a foreclosure is the longest. The wait is generally 3-4 years.
As for F.H.A.-insured loans, they are available three years after a foreclosure, assuming perfect credit afterward, and two years after a bankruptcy is discharged. After a short sale, there’s a three-year wait if the borrower is in default at the time of the sale and there are no extenuating circumstances. If the borrower was on time with all payments for 12 months before the sale, there is no wait specified, meaning that an F.H.A. loan might be available immediately. Among the conditions: A loan isn’t available if the short sale was to “take advantage of declining market conditions,” according to the F.H.A. Home Loan Handbook for lenders.
If you have further questions or concerns, feel free to contact us through our website or by calling 205-879-2447. You may also obtain a copy of our free book on stopping wrongful foreclosures and the problems of hidden fees by emailing us.
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