North Coastal and Inland Real Estate

An increasingly common question every Realtor must know how to answer: "What will happen to my credit if I do a short sale or let the bank foreclose on my home?"

Note:

Credit is used for more things than just getting loans. Bad credit can make it more expensive to rent. Bad credit can keep you from obtaining a job, especially government service or the financial services industry where a security clearance is required

Here are the facts:

Fact #1: Post short sale or foreclosure, how quickly your credit score improves depends in part on how the problem is reported.  In a short sale where the balance is forgiven and no deficiency is recorded in public records, recovery can be quick.   By just paying all your debts on time could bring your score up to a reasonable range.  This will not qualify you for a mortgage but will help with other credit requests.

Fact #2: A foreclosure or bankruptcy can weigh you down for as much as seven years before your credit would be considered good. Foreclosure or a BK will keep you from obtaining a loan for at least 3 years.

Fact #3: You CAN buy a home again. The Federal Housing Administration (FHA), Fannie Mae and Freddie Mac set guidelines for how long a borrower must wait after a "significant derogatory event." These are all subject to various circumstances and conditions. The longest wait comes with a foreclosure.

Fact #4: Fannie and Freddie specify a two-year wait after a short sale, deed in lieu, or discharge or dismissal of bankruptcy. Three years after foreclosure.

Without extenuating circumstances, waits can extend to four years after bankruptcy and seven years after foreclosure.

Fact #5: For FHA loans, they may be available three years after a foreclosure and two years after a bankruptcy is discharged. After a short sale, there's a three-year wait if the borrower is in default at the time of the sale and there are no extenuating circumstances.

Fact #6: Using FHA, If the borrower was on time with all payments for 12 months before the short sale, there is no wait specified. Translated, a FHA loan might be available immediately.

The State of California now has a program that will provide eligible homeowners who are participating in a short sale or deed-in-lieu of foreclosure with up to $5,000. That is right! $5,000.

It’s called the Transition Assistance Program (TAP), and it’s a component of the Keep Your Home California Program.

This is a federally-funded program developed to provide eligible homeowners with transition assistance when it is determined that they can no longer afford their home.

According to the guidelines, TAP will be used in conjunction with short sale and deed-in-lieu programs to help homeowners make a smooth transition into other housing. Homeowners will be required to occupy and maintain the property until it is sold or returned to the lender in a deed-in-lieu of foreclosure.

The program funds would be available on a one-time only basis up to $5000 per household. Funds are intended to help the homeowner secure new housing (e.g., rent, moving expenses, security deposits).

There’s over 32 million dollars allocated to the program and it is designated to aid approximately 6460 households. Fore more information about TAP, check out the Summary Guidelines on the Keep Your Home California website.