There is a lot of misinformation going around about what the impact of a Short Sale is on your credit and whether you can get a new mortgage after short selling a home. Below are the current Guidelines for FHA, and Fannie Mae.
FHA has recently changed their rule so that if a short sale occurred and all of the borrowers payments were made on time (no late payments) then they may be eligible for a new mortgage as long as the short sale was due to extenuating circumstances and not to simply take advantage of market conditions (see below). As you can imagine, this may be difficult to demonstrate. Otherwise, if any payments were made late or you cannot demonstrate extenuating circumstances, then it is a 3 year period before new FHA financing can be considered.
Fannie Mae policy is pretty straight forward – It is a minimum of 2 years to re-establish credit after a short sale.
It is very difficult to predict how a short sale will affect an individual’s credit score because there are so many different factors involved; How good was the credit to begin with? How many house payments were made late? Did they pay all of their other bills on time? Etc, The short sale will most likely be reported as a settled account paid for less than the amount owed and will have a dramatic impact on credit score even under the best of circumstances.

Here is the excerpt straight from FHA:
Borrowers are not eligible for a new FHA- insured mortgage if they pursued a short sale agreement on his or her principal residence simply to
•take advantage of declining market conditions, and
• purchase at a reduced price a similar or superior property within a reasonable commuting distance.

Reference: For detailed information on converting existing principal residences into rental properties, see 4155.1 4.E.4.g

Borrowers Current at the time of Short Sale
Borrowers are considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage
•All mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and
• All installment debt payments for the same time period were also made within the month due.

Borrowers in Default at the time of Short Sale
Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.
Note: Borrowers who sold their property under FHA’s pre-foreclosure sale program are not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale.

This is Fannie Mae’s Guideline:
Preforeclosure Sale
A two-year period is required to re-establish credit, measured from the completion date.

Written by:
Ken Mascia
248.644.1200
kmascia@primecapitalmortgage.com

Share on Facebook

Based on information furnished as input to the Realtors® Confidence Index, sales of distressed homes—both foreclosures and short-sales—have been down slightly in recent months as a percentage of overall home sales. Distressed home sales declined to 31 percent of monthly sales in July, down from a high of 49 percent earlier this year in March and a 41 percent level at the start of the year.

Distressed property sells at a discount relative to similar non-distressed property. The median discount to market for distressed property is 15 percent for both short sales and foreclosures, having declined from 20 percent earlier this year. Realtors® have indicated that the price discount is due to property condition coupled with seller need to complete a transaction. We understand that the discount-to-market price has declined in recent months due to buyer perceptions of significant values at current listing prices.

Continue reading ‘Existing Home Sales: Market Remains Bifurcated’ »

Share on Facebook

Seventy-Six associates at SKBK Sotheby’s International Realty (skbk.com) recently completed an Advanced Short Sale Workshop.

Douglas Hardy, Chairman of SKBK Sotheby’s International Realty, said the training curriculum, developed by Interstate Title, Inc. of Livonia, Michigan, qualifies candidates as experts in short sale real estate transactions.

Short sales are property resale transactions with the approval of the lender for an amount that is less than the principal owed on the property mortgage. Short sale transactions often represent a viable alternative to foreclosure proceedings for both sellers and lenders. Hardy said the recent increase in distressed home sales—foreclosure and short sale transactions account for an estimated 47 percent of reported sales in recent months—indicates a significant need for short sale expertise.

“SKBK Sotheby’s International Realty began developing specialized skills in short sale transactions two year ago. This was absolutely necessary with where the market was heading and in an effort to speed up the process of dealing with the banks,” Hardy explained.

Professional help is critical in short sale transactions, Hardy added. In addition to professional help negotiating the best possible terms for the seller, professional representation can offer substantial relief for the seller.

“If sales negotiations and contracts are not properly developed, the results may not be as optimal as possible for the seller and it is our role as professionals to serve our clients with expertise. This training has allowed our associates to offer services and skills to our clients that are not available in most brokerages,” Hardy explained.
For more information contact

Douglas Hardy, Chairman of SKBK Sotheby’s International Realty 248-644-7000. dhardy@skbk.com

Share on Facebook