Conventional And FHA Loans After Short Sale Versus Foreclosure

This BLOG On Conventional And FHA Loans After Short Sale Versus Foreclosure Was UPDATED On July 3, 2017

Are There Benefits Of Short Sale Versus Foreclosure?

There are benefits of short sale versus foreclosure if home buyers are planning on buying new home with Conventional Loans. Waiting Periods to qualify on Conventional Loans after deed in lieu of foreclosure and short sale versus foreclosure is different.

  • Many homeowners who are financially burdened with their current housing mortgage payments and have mortgages higher than value of home.
  • In order to sell their homes, they need to come up with money to cover the difference between sales price and outstanding mortgage balance.
  • They have three options: Foreclosure, deed in lieu of foreclosure, or  short sale
  • Homeowners who go through a short sale, deed in lieu of foreclosure, or foreclosure can qualify for mortgages after meeting mandatory waiting periods.
  • to understand the differences between short sale, deed in lieu of foreclosure, or foreclosure and how it affects them in the future when purchasing another home is important.

Waiting Period Of Short Sale Versus Foreclosure

There are many benefits with short sale versus foreclosure:

  • Homeowners who go through short sale needs the lender’s permission to be able to sell their home below the balance of their mortgage loan.
  • Short Sales are normally done when a homeowner has a home where the value is lower than the balance of their mortgage loan balance.
  • The short sale process is like any other home sales process with the exception that the lender needs to approve the final sales price
  • The homeowner picks the realtor and shows their home and submits the offer to the lender for approval.
  • Homeowners will be handling the sale as the seller and not the bank.
  • Homeowners can still do a short sale even if their mortgage payments are current and have had a timely payment record.
  • There is no waiting period to qualify for a FHA Loan or VA Loan if a homeowner had a short sale and had their monthly mortgage payment current up to the date of the short sale.

Conventional Loan Waiting Period After Short Sale Versus Foreclosure

  • Homeowners who had a short sale used to be able to qualify  for a conventional mortgage loan two years after the date of the short sale with a 20% down payment.
  • However, this is no longer the case and new waiting period requirements were implemented.
  • Home buyers can qualify for conventional loans four years after short sale and/or deed in lieu of foreclosure with 5% down payment.

Waiting Period After Short Sale Versus Foreclosure On Government Loans

  • The waiting list for FHA and USDA Loans after recorded date of deed in lieu, foreclosure or short sale is a 3 years.
  • The waiting period for FHA, VA, USDA Loans after Chapter 7 Bankruptcy discharged date is 2 years.
  • The waiting period after short sale, deed in lieu, or foreclosure for VA Loans is 2 years.
  • Government Loans classify short sale, deed in lieu, and foreclosure all in one category and waiting period to qualify for home loans are the same unlike Conventional Loans.

Downfalls Of Foreclosures

Purchasing a home after a foreclosure has longer waiting period requirements to qualify for new mortgage under Fannie Mae/Freddie Mac Guidelines than after short sale and/or deed in lieu.

  • The normal waiting period to qualify for a conventional mortgage loan for a primary residence is 7 years after the recorded date of standard foreclosure.
  • Waiting Period to qualify for conventional loans after short sale and/or recorded date of deed in lieu of foreclosure is 4 years.

Will Credit Scores Suffer After Short Sale Versus Foreclosure?

Credit scores will drop significantly after bankruptcy, foreclosure, short sale, and/or deed in lieu of foreclosures.

  • However, the sudden credit score drop is temporary and credit scores eventually will go back up. The best way to boost and re-establish credit after short sale, bankruptcy, deed in lieu, and/or foreclosure is by adding positive credit.
  • Secured Credit Cards are the best, easiest, and fastest way of re-establishing credit after bankruptcy, foreclosure, short sale. Eventually, as the bankruptcy, foreclosure, deed in lieu of foreclosure, short sale ages, it will have little to no impact on credit scores.

Credit Reporting: Agreed Or Paid Settlements

Public records will remain on consumer credit reports.

  • Mortgage Lenders reports public records on consumer credit reports.
  • Derogatory credit remains on credit report for 7 years.
  • Chapter 7 Bankruptcies remain on credit reports for 10 years.
  • Both foreclosures and repossessions will be reported on credit report for at least 7 years from the date of last activity.
  • First delinquency date that eventually led to the final foreclosure is normally the date of last activity.
  • Current bankruptcies, deed in lieu of foreclosure, and foreclosures can drop credit scores by more than 100 to 150 points.
  • Again, the sudden drop will eventually go back up as the public record ages.

Deficiency Judgments

In the event if the foreclosure is followed by a deficiency judgments, you can add another 120 point credit score drop to your bruised credit score.

On most short sale cases, the deficiency is often times waived by the mortgage lender.

  • In the event if the short seller encounters a deficiency judgment, it can often be negotiated between the short seller and the short sale mortgage lender.
  • A deficiency judgment can be issued against the homeowner after a home foreclosure.

Both Short Sale Versus Foreclosure Will Negatively Impact Credit

However, a short sale is a much wiser choice than a foreclosure.

  • Consumers should not worry about negative credit impact when a short sale or foreclosure gets posted on credit report. 
  • The sudden drop in credit scores is just temporary after short sale or foreclosure. 
  • Credit scores will go up as time passes even if consumers do not do anything to it. 
  • If credit scores dropped from 700 FICO to a 450 FICO after a short sale or foreclosure, credit will go up to close to 600 in about a year. 
  • Credit Scores can be 700 FICO Plus if consumer adds new positive credit like secured credit cards.
  • Many consumers start re-establishing credit by getting a few secured credit cards after a short sale or foreclosure.
  • Re-Establishing credit with secured credit cards can expedite boost of credit scores to the 700 FICO score after a year of short sale and/or foreclosure.

Related> Mortgage After Short Sale

Related> Conventional Loan After Short Sale

Related> Qualifying for Mortgage After Short Sale in California

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.

Comments are closed.