What Is A Short Sale?

Gustan Cho Associates

What Is A Short Sale?

A short sale is when a homeowner gets the permission from their mortgage lender where they can sell their home for a value that is less than their mortgage balance.  The Great Recession of 2008 has plummeted property values in California. California housing values plummeted more than housing values in other parts of the country.  California homeowners who thought they had plenty of equity realized that they now were stuck in their homes where all of the equity has been wiped out and were sitting on homes that the balance of their mortgage loan was higher than the value of their home. They were stuck. They could not sell their homes. If they were to sell their California homes, they would have to come up with money out of pocket. California home foreclosure rates have soared to historical levels. There was not a home in a block where there was not a foreclosure property for sale.

How Does A Short Sale Work?

California homeowners who have a home whose mortgage balance is worth more than the value of their home and who can no longer afford to stay in their homes have a few options.  They can see if they can do a loan modification where the mortgage lender can restructure the mortgage loan where they can forgive part of the debt or all of their delinquent mortgage payments and reduce the interest rate and/or forgive part of the mortgage principal balance or  can  turn in the keys to the home to their mortgage lender and have the property foreclosed on, or do a short sale on their home.  A short sale is when the homeowner who has a home whose mortgage balance is higher than the value of their property and wants to sell their home at market value.  However, the homeowner needs the blessing of their mortgage lender and needs the mortgage lender approve the price and approve the final short sale.  The homeowner gets to choose the listing real estate agent.  The mortgage lender will approve the listing price of the home and will review all purchase offers.  The mortgage lender needs to approve the purchase offer on bids of the property.  Once the mortgage lender approves the purchase offer, the real estate transaction is like any other home purchase transaction.  Short sales normally take much longer to close because mortgage lenders take their time in signing off on short sales.

What Does A Short Sale Do To One’s Credit

If you have a short sale on your credit report, your credit scores will drop dramatically.  A recent short sale on your credit report will drop your credit scores by more than 100 FICO points.  The good news is that the drop is just temporary and your credit scores will improve as your short sale on your credit report ages.  To expedite higher credit scores, a person who just had a short sale should start re-establishing their credit.  The fastest way of boosting one’s credit scores after a short sale is to add new credit by getting three to five secured credit cards.  Secured credit cards is by far the best tool in re-establishing credit and boosting your credit scores.  I have seen consumer credit scores north of 700 FICO just one year after having a short sale reported on their credit report.

Can I Qualify For Mortgage After Short Sale In California?

Home buyers can qualify for a mortgage after short sale in California via a FHA loan after a three year waiting period from the date of the short sale that is reflected on the HUD-1 Settlement Statement. California has one of the highest home prices in the nation.  Standard FHA loan limits for 2015 on FHA loans is $271,050 unless the home is located in a high cost area. Most areas in California are in high cost areas and FHA loan limits in most counties in California is $625,000. FHA loan limits in many parts of California are higher than Conventional loan limits, which is a huge advantage.  Minimum credit score to qualify for a 3.5% down payment FHA loan in California is 580 FICO.  Maximum debt to income ratios for FHA loans in California for home buyers with credit scores at 620 FICO or higher is 56.9%. If your credit scores are lower than 620 FICO, the debt to income ratio is capped at 43% DTI.  Re-established credit is expected and verification of rent is a huge compensating factor that mortgage underwriters love.  You can qualify for a FHA loan with credit scores under 580 FICO in California, however, a 10% down payment is required for all mortgage loan applicants with credit scores under 580 FICO.

Conventional Mortgage After Short Sale In California

If you are looking for a conventional mortgage after short sale in California, there is a four year waiting period to qualify.  The waiting period to qualify for a conventional mortgage after short sale in California starts from the date of the short sale which is reflected on the HUD-1 Settlement Statement.  Minimum credit scores required is 620 FICO and minimum down payment required is 3% down payment for home buyers who did not own a home for at least three years.  Otherwise, a 5% down payment is required.  Re-established credit is expected and no late payments after the short sale is expected as well unless there has been extenuating circumstances.

California Mortgage Lender With No Overlays

Lender overlays are additional mortgage lending guidelines on top of minimum lending guidelines by FHA or Fannie Mae. For example, to qualify for a FHA mortgage loan in California, all you need is a 580 credit score and a 3.5% down payment.  However, many California mortgage lenders require mortgage loan applicants to have 640 credit scores. I am a no overlay California mortgage lender and as long as you can meet the minimum FHA guidelines, I can get your California mortgage loan approved, cleared to closed, and funded.  Contact me at 262-716-8151 or email me at gcho@gustancho.com if you are looking for a California mortgage lender with no lender overlays that specialize in California home loans with bad credit.  You can apply online now and get a fast pre-approval by clicking APPLY NOW .  I will get alerted via email and you will get your pre-approval within the hour.  I am available 7 days a week, late evenings, weekends, and holidays.

Related> Mortgage after short sale: 2015 guidelines

Related> 2015 Guidelines on mortgage after short sale

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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