I often meet homeowners these days who are either struggling with, or know someone who is struggling with their mortgage. They may be behind on payments and have no equity in their home.
“How do you avoid foreclosure?” they ask.
It's a common question. After some discussion and realizing that a short sale may be the best option the inevitable next question is:
“Will a short sale hurt my credit score? And if so, by how much?”
I recently came across some great information. It appears that in terms of the Fair Issac scoring model (how your credit score is calculated), there is no difference between a foreclosure, a short sale, and a 120 day late (Notice of Default) it is EXACTLY the same...
HOWEVER, here is what is IMPORTANT. These are the Foreclosure guidelines by Fannie Mae and Freddie Mac:
Foreclosure
None in past 5 years with minimum 3 active trade lines more than 24 months old, with no late payments or derogatory credit after the foreclosure.
Definition of Foreclosure: Any 120 day mortgage late within the last 24 months, any notice of default or settlement on a real estate secured trade line (short sale), any deed-in-lieu or forbearance agreements.
What it means is this…AND THIS IS IMPORTANT...Your credit will be impacted equally by NOD, Foreclosure, and Short Sale (provided you are up to 120 days late on your mortgage)
HOWEVER...
You will be able to get another mortgage and buy a home again in two years after a short sale, whereas you will have to wait 5 years after a foreclosure. (unless you can document extenuating circumstances and then the waiting period is four years)
Please share this information with the people you care about, it could be a costly mistake to make.
Comments