How a Short Sale, Foreclosure and 30 Days Late on a Mortgage Affect Your FICO score.

By Troy Corman,

Working in real estate and dealing with home sellers and renters in today's marketplace, you get a first-hand look at the financial damage many individuals have recently encountered. Short sales, foreclosures, and bankruptcies are a common theme.

Like most, I was surprised to find that the credit destruction from both a short sale and a foreclosure is quite similar. After reading a blog entry, Credit Scoring Impacts Short Sale vs Foreclosure by Massachusetts Realtor Bill Gassett, I thought this information was too valuable to keep to myself. Thanks Bill for a great article!

So how does a short sale affect your FICO score, or credit score? Surprisingly, you'll find that a short sale and a foreclosure have very similar effects on your credit score. As you'll see in the chart above, a person who starts out with a credit score of 680, can expect his or her credit score to drop to 575-595 after a short sale AND it's the same reduction for a foreclosure. A bankruptcy even does more damage as it will drop the said 680 credit score to the 530-550 range.

Also, just being 30 days late on your mortgage really hammers your credit score. As you'll see in the FICO chart, a 30-day late payment reduces the 680 credit score to the 600-620 credit score range.

So how long does it take to restore your credit after a short sale, foreclosure or 30-day late payment on a mortgage? Well according to FICO, the higher your original credit score, the longer it takes to restore that credit score to it's previous level. A 30-day late mortgage payment would take about 9 months to get back to the 680 level if you started out there. Unfortunately, it would take about 2.5 to 3 years to get back to a 720 FICO or 780 FICO, respectively.

A short sale is still better than having a home foreclosure. A short sale on a Fannie Mae loan will allow you to buy a home sooner - within about 2 years. With a foreclosure on a Fannie Mae loan, you'll have to wait 5 years to purchase another home and 7 years if you suffer a foreclosure on an investment home.

If you need to buy, sell or get a home leased, contact me at 214.690.9682, or email troycorman@t2realestate.com.

Troy Corman is the founder of t2 Real Estate LLC, a Dallas real estate firm providing specialized knowledge with a hands-on approach. Specialties include residential real estate brokerage, land and acreage, and commercial real estate services. Contact us today at 214.827.1200 if you need to sell, buy or get your DFW property leased.
Tweet

Retweet this button on every post blogger

Foreclosure Versus Short Sale. How Each Affect Your Credit.

By Troy Corman, www.t2realestate.com

The following is a quick reference and general guide for those considering a "short sale". A short sale is defined as a lender (bank) accepting less than is owed on the current owner's mortgage loan. A short sale isn't ideal for your credit report but it is much better than having a foreclosure on your credit history. We'll compare the two scenarios below.

Fannie Mae Loan - On a primary residence, a homeowner who loses a home to foreclosure is ineligible for a Fannie Mae-backed mortgage for 5 years. A homeowner who successfully negotiates and closes a short sale will be eligible after only 2 years.

Fannie Mae Loan (non-primary residence) - A foreclosure would prevent the buyer, or investor, from using a Fannie Mae-backed investment mortgage for 7 years. An investor who successfully negotiates and closes a short sale will be eligible after only 2 years.

Credit Score - On a recorded foreclosure, your credit score will be lowered from 250 to more than 300 points. Typically, it will affect credit score for over 3 years. On a short sale, the mortgage is normally reported as "paid as agreed", "paid as negotiated", or "settled". Only late payments on the mortgage will show. A short sale can lower your scores as little as 50 points if all other payments are made. A short sale's effect can be as brief as 12 to 18 months.

Credit History - Foreclosure will remain as a public record and on a person's credit history for 10 years or more. A short sale is not reported on your credit history.

Security Clearance - Foreclosure is the most challenging issue against a security clearance outside of a serious misdemeanor or felony conviction. Positions in the police force, military, CIA and security fields usually result in termination. A short sale, on it's own, does not challenge most security clearances.

Current Employment - Employers have the right and are actively checking the credit of all employees who are in sensitive positions. In many cases, a foreclosure is reason for immediate reassignment or termination. A short sale is not reported on a credit report, and is therefore, usually not a challenge to employment.

Future Employment - Many employers are requiring credit checks on all job applicants. A foreclosure can challenge employment. A short sale is not reported on a credit report and therefore, should not challenge future employment.

Deficiency Judgment - In 100% of foreclosures (except in those states where there is no deficiency), the bank has the right to pursue a deficiency judgment. In some successful short sales, it is possible to convince the lender to give up the right to pursue a deficiency judgment.

The preceding information is a general guide and is not legal advice. If you're in dire straits, please consult real estate or legal counsel as soon as possible. Best of luck!
Tweet