Don’t Let a Short Sale Keep You From a New Mortgage
If you negotiated a short sale of your home, you may be surprised to learn that some mortgage loan underwriting systems can’t distinguish short sales from foreclosures on consumer reports. And that may keep or delay you from getting a new mortgage.
You see, borrowers who go through a foreclosure typically have to wait seven years before they’re eligible for a new mortgage. But short sellers may qualify in as little as two years. When you’re trying to buy a new home, an additional five years can seem like a lifetime. So is there anything you can do to improve your financial footing? You bet there is.
Get a letter from your lender confirming that your loan closed in a short sale, not a foreclosure. Send a copy of the letter to each of the nationwide credit reporting companies: Equifax, Experian, and TransUnion.
Order a copy of your credit report. Make sure the information is accurate. If you find a mistake, contact the credit reporting company and business providing the information to correct the error.
It seems to me that foreclosure, short sale, deed in lieu, cash for keys all mean the lender probably lost money so there is a negative connotation – Its my understanding all of those things get reported simply as “foreclosures” on credit reports. is there a new regulation on this? It would be helpful for me to know this since I help people prepare to get a mortgage.
There is currently no difference in the waiting time between a short sale and foreclosure until a new mortgage according to our underwriter. Per one of the mortgage lenders here at the University of Michigan Credit Union. Kathryn Greiner
Both a short sale and a foreclosure will impact your credit score essentially the same- a loss of 100 to 300 points. Still, many say that a foreclosure will hit your credit harder than a short sale with late payments- each seller situation varies. If you have a great credit score when either happen, you will be most affected and take the longest to recover. If you already didn’t have a great credit score, you may only suffer a loss of 100 points or so. Someone that has had a short sale can expect to wait at least 2 years for a decent interest rate on an institutional mortgage loan, although negative credit will show on your credit report for 7 years. With foreclosures, it will take at least 5 years, but probably closer to 7 years, to obtain a new mortgage loan.
When you’re ready to buy another home, get pre-approved for a loan. A pre-approval letter from a lender shows that you are able to go through with a purchase. Pre-approval is not a final loan commitment; it means you met with a loan officer, your credit report was reviewed, and the lender believes you can qualify for a specific loan amount. This pre-approval process allows your lender to identify issues and errors in your credit report that may keep you from qualifying for a loan. That, in turn, allows you to correct inaccuracies before they can prevent you from buying another home.