Short Sale Credit Impact:
Credit Reporting after a Short Sale,
a Foreclosure or Bankruptcy
Credit Reporting after a Short Sale,
a Foreclosure or Bankruptcy
Which of these terms is NOT an actual derogatory item that would appear on a credit report from any of the three major credit bureaus?
1. BANKRUPTCY
2. FORECLOSURE
3. JUDGMENT
4. SHORT SALE
5. COLLECTIONS
The correct answer is “Short Sale”. There is NO SUCH THING as a Short Sale in terms of CREDIT REPORTING. While most credit experts agree that a Foreclosure is the most harmful item that can appear on a credit report, with Bankruptcy as a close second, and Judgment & Collections also very harmful, a short sale is not reported as such on your credit. Typically after a short sale is completed, the bank or loan servicer reports the mortgage as “Paid as Agreed” (same as when the mortgage is paid off) or “Paid in Full” with a “settled for less than owed” remarks code. In short, your mortgage will show as being paid off and resolved in a way that was satisfactory to the creditor (your lender).
To be eligible to purchase another property in the future, a Short Sale would provide the best option. The following waiting periods prior to being eligible for a new mortgage demonstrate why a Short Sale is the best option for somebody who might want to consider purchasing another property in the future.
· Foreclosure: 5 years w/ very strict guidelines. Most often minimum 7 years. Many lenders will require more than 7 years.
· Deed-in Lieu of Foreclosure: 4 years w/ very strict guidelines. Typically minimum 7 years.
· Bankruptcy: Chapter 7: 4 years from discharge or dismissal; Chapter 13: 2 years from discharge or 4 years from dismissal.
· Short Sale: 2 years. Less if borrower was not 60+ days late on mortgage prior to Short Sale.
* FNMA Announcement 08-16, 6-25-08
* Fannie Mae Guidelines |
Short Sale | Foreclosure | Deed-in-Lieu | Bankruptcy |
| Waiting period for eligibility to borrow to purchase another home | 2 years conventional if borrower was 60+ days late. Waiting period is less if borrower did not miss payments prior to short sale. | 5-7 years (eligible after 5 years w/ very strict guidelines…typical lending after 7 years) | 4-7 years (eligible after 4 years w/ very strict guidelines…typical lending after 7 years) | All types except Chapter 13: 4 years from discharge; Chapter 13: 2 years from discharge or 4 years from dismissal; Multiple bankruptcies: 5 years from most recent dismissal |
Other Requirement to Re-Establish Mortgage Credit
- · Must meet requirements for elapsed time above
- · Credit Report must show all accounts to be current at time of new mortgage application
- · Credit Report must include four credit references. At least one credit reference must be traditional and at least one credit reference must be housing related. Housing payment can be mortgage or rent payments.
- · Credit Report must show 3 of the 4 credit references active in the 24 months proceeding new application.
- · Credit Report may not have more than two payments 30 days past due since the short sale.
- · Credit Report may not show any payments of 60 days late since the short sale.
- · Credit Report may not show any housing payments past due since the short sale.
- · Credit Report may not show any new public records such as judgements or collections since the short sale.
You will ALWAYS have to disclose that you have had a foreclosure on any mortgage application & many job applications you submit for the rest of your life. Even when you are eligible for another mortgage after 7 years, the foreclosure will have an adverse affect on your interest rates for all types of credit.
Many employers run credit checks on prospective employees. Additionally, many CURRENT employers run credit checks. In both cases, a foreclosure can put a current or potential new employee in jeopardy.
Please do not consider this legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Please consult an attorney & CPA.
