Fixing Your Finances After Foreclosure or Short Sale
Fixing Your Finances After Foreclosure or Short Sale
How to Fix Your Finances After Foreclosure or Short Sale, by
There are not many things that can negatively impact your credit score more than a foreclosure or short sale. In fact one of the more common untruths you will hear from many Realtors is that short sales don’t impact your credit scores like foreclosures do. This is absolutely WRONG!
If you fail to pay your mortgage during a short sale the credit score impact will be nearly identical to a foreclosure according to My FICO the governing body for credit scoring.
Some Real Estate agents will paint a short sale as your ticket to the Promised Land and a foreclosure as a ticket to financial misery for the rest of your life.
They do this of course because they want you to list the property with them as a short sale. A true Real Estate professional should be going over all possible financial options with you and not just looking to put money in their wallet.
There are of course advantages to doing a short sale but a better credit score is not one of them unless you are able to complete a short sale without missing mortgage payments. The sad truth is that most but not all of the time a lender is not going to grant short sale approval unless you are behind in your mortgage payments. From a lender’s perspective if you are able to continue paying your mortgage why should they grant you a short sale?
The advantages of a short sale vs a foreclosure center around the time you will be able to purchase a home again in the future. You will be able to buy a home after completing a short sale much quicker than a foreclosure.
If you can show extenuating circumstances of why you had to do a short sale or lost your home to foreclosure you may be able to get a loan sooner. Some of the acceptable hardships that could factor into a lenders decision are divorce, loss of a job and unexpected medical expenses.
Another advantage of a short sale is how future employers, as well as other types of creditors look at you in the future. Having aforeclosure on your resume is not something an employer is going to look at favorably. In a short sale you have at least attempted to live up to your debt and not just walk away.
Owning a home again after a foreclosure/short sale
Work on increasing your credit score
One of the most important steps you can take to getting back into the home ownership arena after a foreclosure is to work on increasing your credit scores. There is no doubt that building your credit score after a foreclosure or short sale is a difficult task. On average you can expect your credit score to drop between 150-200 points so you will have a lot of work to do!
Two or the most important things you can do to raise your score is to pay your bills on time and keep your credit card bills below the maximum levels.
Keep your employment stable
One of the things lenders look for with borrowers especially after a short sale or foreclosure is employment stability. Unless you have the opportunity to move into a position that offers a much higher pay you will be better off sticking with the job you have. The lender is going to want to see you are grounded with work and not changing jobs.
Rebuild your savings after foreclosure
Lenders are also going to want to see that you have squirreled away some money. Working on saving any extra money so that your nest egg is built back up becomes important. A six month reserve is a safe bet to show lenders that you have a fall back plan should you happen to become unemployed.
Owning a home again after short sale or foreclosure is certainly achievable is you work diligently towards getting your financial house in order!
Home owners struggling to make mortgage payments are often turning to doing a short sale as a means of escaping their debt.
If you are not familiar with the term, a short sale is when a bank or mortgage lender agrees to discount a loan balance because of a financial hardship on the part of the borrower. The home owner sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds from the sale to the lender.
One of the most important considerations when pursuing a short sale of your home is to make sure that the debt has been canceled!
There is always a sense of great relief when a short sale approval comes from the bank. Often times it is months of waiting and the uncertainty can wear on anyone that has gone through the process.Short sales are anything but short!
All of the short sales I have been involved with are with the help of a local attorney who works with the buyers during the short sale process. The relationship has been tremendous and my seller clients have been the beneficiaries of our team work.
One of the things I have been able to count on is the fact that the attorney has gotten a release of debt from the lender.
This point is crucial for you to understand because there are lots of Realtors out there who are representing sellers in short sales that do not know anything about debt removal.
What has been coming to light recently is that a number of lenders are selling unpaid mortgages to collection agencies which in some states have years to come after you for a collection of this unpaid debt. Some of these collection agencies have been able to win court judgments where they can collect through repayment plans and even garnish your wages if necessary!
These short sales where the debt has not been released is opening up opportunities for companies and investors that specialize in preying on people who did not know any better. This is big business and is known in Real Estate circles as “scratch and dent”.
There is some relief in sight for some folks under the new Home Affordable Foreclosure Alternatives Program (HAFA). This new short sale program aims to prevent banks that hold second-lien loans from pursuing collections from homeowners after the short sale.
Under this HAFA program sellers will receive notice that their service company has steered part of the sales proceeds to secondary lien holders in exchange for release and full removal of their liens. It is important to understand however, that this release would apply only to short sales done through the Home Affordable Foreclosure Alternatives program. Not all lenders will be participating in this program.
Above all else if you are doing a short sale make sure your representative gets the lender to sign off on a complete removal of debt on your property!