Will Doing a Short Sale Affect My Credit?

April 22, 2010 by · Leave a Comment 

With almost 20% of the inventory in Falls Church falling in to the category of “distressed sales” (e.g., short sales or foreclosures), the implications of pursuing a short sale are becoming important to more and more people.  Many potential sellers ask: Will doing a short sale affect my credit and how much?

The short answer is yes.  Yes, it will definitely affect your credit. Most sellers, by the time they are considering pursuing a short sale, have either already missed payments or it’s imminently foreseeable that they will miss payments, which also affects your credit.  How big is the impact?  That is the part that varies widely.

Think of your credit history as a pool of water.  For some borrowers, it’s just a puddle…maybe someone is recently out of college and just bought his first new car, or someone has recently immigrated to this country and now has their first credit card.  The longer a borrower has established credit (and pays on time), the larger that pool becomes.  For some people who have successfully paid off credit cards, utility bills, car loans, and mortgages for many years, they have a virtual ocean full of credit.

If a borrower suddenly starts to miss payments on their mortgage, those missed payments make up a far more significant percentage of the pool to a new borrower versus someone who has a twenty year successful borrowing record. In either case, you can be sure that you won’t be approved for another mortgage for a minimum of two years (three years if you’re looking for an FHA mortgage), according to Fannie Mae’s just released guidelines.  After two years, a borrower is theoretically eligible for a mortgage with a 20% down payment.   If you wait four years, a borrower is eligible for just a 10% down payment.

Most short sales never close, but every day new processes and systems are evolving.  The Home Rescue Institute boasts a 95%+ close record for short sales accepted into the program. They achieve this by closely controlling the offer process and negotiating with the bank on a seller’s behalf.  The Home Rescue Institute brings together real estate agents, professional negotiators, settlement companies, and a legal team to represent the seller.  There’s no reason for a seller to go through the process alone, and it’s critical to have a team of experts–not a sole real estate agent trying to ‘do it all.’  The process is simply too complex and the skill sets too  diverse.

Katie Wethman, CPA, MBA, is Managing Director of the Wethman Group at Keller Williams Realty, and a Certified Home Rescue Expert.  If you’re considering a short sale of your Falls Church, Arlington, or Northern Virginia home please contact us for a confidential counseling appointment about the impacts of short sales, foreclosures, and bankruptcy.

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