Choosing Short Sale Over Foreclosure
by Lydia and by Shirley H. in Camden, South Carolina
Ask Kate about choosing short sale over foreclosure: Short sale is the act of selling your home for less than you owe on the mortgage. Making Home Affordable as well as banks are pushing for short sales, calling it the responsible action for distressed homeowners. They claim would-be borrowers will become eligible for mortgage approval more quickly if they use the short sale process vs foreclosure.
But I don't think we will really know if short selling houses is truly easier on credit histories until a decade has passed. Until then, we are guessing.
But one thing we do know today is this. Banks, together with the major credit bureaus, are treating borrowers involved in short sales much the same as they penalize those who have lost their homes to foreclosure.
Now please don't mistake what I'm saying. I am not against short sale. Neither do I advocate foreclosure without serious consideration. Even so, borrowers should go into the short sale process realistically, with eyes wide open.
So if you are are going to short sale your home (or know someone who plans to), please read Lydia's and Shirley's stories.
How Can I Refinance After Short Sale By Lydia
Hi Kate: In a recent divorce settlement, I kept my home. But I am suppose to refinance to remove my ex-husband from the loan.
However, in December 2012, I short sold a home I helped my son buy in 2006. Unfortunately this affected my credit so my mortgager rejected a refinance and an assumption loan.
How long will I need to wait? Will another program help me? Please advise. Thank you.
Ask Kate answers: How Can I Refinance After Short Sale
It's quite absurd that lenders insist on tarnishing the credit of distressed homeowners (much like the banks were distressed a few years ago) who are trying to avoid foreclosure using the prescribed short sale method.
If it truly is the responsible action, as claimed, why is it reported as a foreclosure to the credit bureaus? More on what you can do about this in a moment.
How Soon Can I Get a Mortgage
Depending on your qualifying criteria, it could take a minimum of two years to be able to get a mortgage after a short sale. I occasionally hear stories of people buying homes with lender financing within weeks of a short sale. But I am suspicious that they have a relative who actually gets the mortgage or gifts a substantial downpayment.
What Loan Program Should I Investigate
The size of your loan balance is going to determine this option in some part but you should look into FHA financing. FHA underwriting requirements
are known for being more forgiving of bruised credit, even with a limited down payment (for home buyers) or equity (for homeowners).
Regardless of the loan program you pursue, put together a package for the lender. Include two years of income documentation, 2 paystubs, 2 bank statements, and the complete divorce decree.
Write a letter to explain your son's short sale with documentation showing you were a co-signer, did not contribute to the house payments, and never lived in the house. You could create a timeline of the years you've had perfect credit and point out that your mortgage has always been paid on time, just in case the underwriter is the visual type.
Go here for a complete mortgage checklist
of paperwork your lender will need.
Backing up for just a moment, I don't want to give you unrealistic hope because you still may be waiting a few years to get a mortgage. Even so, this remains the top-notch method of applying for a home loan.
What Can I Do for My Credit After Short Sale
Fannie Mae and Freddie Mac have long stipulated that it can take up to seven years after foreclosure to get a new mortgage, depending on your qualifications. In contrast, advocates of short sale claim you can borrow after two years.
But here's what hurts your potential to qualify for a new mortgage. When a short sale is reported to credit bureaus, it is coded as a foreclosure. (Is it really THAT difficult to come up with a new code for short sales?) So it becomes very important to ask your bank to confirm in writing that your homeownership ended via short sale, not foreclosure.
Send a copy of this letter to the credit bureaus. Ask them to correct your record from foreclosure to short sale, based on your lender's letter. If you cannot squeeze a letter out of your lender, make copies of your final recorded short sale document and send it with your request.
Contact information for the three major credit reporting agencies
is found here.
Best wishes, Kate
HAFA Relocation Assistance After Short Sale By Shirley H. from Camden, SC
What is the process of receiving the HAFA relocation assistance after short sale?
I submitted by paperwork online and my home was sold as a short sale. The documents were given to the counselor but I can't seem to contact her after several messages.
She doesn't return calls, or is too busy if I drop by. This is suppose to be the agent assisting me.
Ask Kate answers: HAFA Relocation Assistance After Short Sale
I'm so sorry to hear of this delay. If a week or so has passed and you have not heard from anyone regarding your HAFA check, call 888-995-HOPE (4673) and ask a HUD-approved housing counselor for your next step.
By the way, I assume the counselor you refer to is related to the Making Home Affordable Program. (No one should ever pay an outside source for HAFA assistance.) Read about HAFA housing experts here
HAFA stands for Making Home Affordable Foreclosure Alternatives. Read more about the options to help distressed homeowners provided by the Making Home Affordable Program created during the Obama Administration at Short Sale vs Foreclosure
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