An important consideration when you are faced with a short sale or foreclosure on your home in Phoenix Arizona is what the outcome might be on your credit report. You also want to think about how long your credit rating will be negatively affected by a short sale or foreclosure.
The unfortunate fact is that foreclosure or deed-in-lieu of foreclosure will have a very adverse effect on your credit score even if you are only 30 days. The damage to your credit report gets worse as you go longer with your mortgage delinquency.
How Will Foreclosure or Short Sale Affect My Credit Score and Credit Report?
- Foreclosure or Deed-in-Lieu of Foreclosure – Both of these will affect your credit report and scores the same. The status of your overall credit when you either fell behind or will fall behind on your mortgage has an impact on the amount your credit scores will fall, which is usually between 200 to 300 points. The effect on your credit report and scores due to a foreclosure or a deed-in-lieu of foreclosure will be minimized if you had credit scores higher than 700 with impeccable credit history than if your credit was unfavorable.
- Short Sale – Your payment history with your lender and how it is maintained will influence what happens to your credit rating during a short sale. If you do not become delinquent on your mortgage payment as you go through the short sale process then your credit should be minimally affected by a short sale. However, if you fall behind on payments during this time, your credit report and credit report will decrease sharply based on the number of payments on which you fall behind. Conversely, it will not be as bad as what you will suffer if you experience a foreclosure.
What is the Waiting Period Before Buying Another Home?
What you plan to do after your short sale or foreclosure is an essential part of your decision-making process. You need to consider carefully which alternative you will take if you are planning to buy a home soon after your short sale or foreclosure. Your credit ratings will suffer as a result of either a foreclosure or a short sale. However, a foreclosure has a far more reaching impact on your credit report and ability to purchase a house than a short sale.
- Foreclosure or Deed-in-Lieu of Foreclosure – If you lose your home to a foreclosure or deed-in-lieu of foreclosure you will end up waiting between 36 and 60 months to buy another home.
- Short Sale – The short sale may be the best option if you want to buy a house soon afterwards. Your ability to buy a home within the first two years after your short sale will depend on your credit history (primarily your mortgage payment history). If you have kept your mortgage payments current with no payments more than 30 days late and did not agree to repay the debt relief, then Fannie Mae will allow you to immediately apply for a mortgage to purchase another home.
Foreclosure or Short Sale Decision
The decision between a foreclosure or a short sale is dependent on your mortgage and credit history leading up to the event. If you need to sell your home but owe more than it is worth, and your credit history is impeccable then the short sale is the best plan for you. If your history is negative, and you have no immediate need or plans to own your own house in the near future, then a foreclosure may be a better alternative. If it is possible, however, consider a short sale as it is the least damaging when it comes to your credit rating.
To find out more about your options of a short sale versus a foreclosure contact Arizona CDPE Experts: Rob Lanterman or Roxanne Pierson
Sorry to hear about your injury… Hope you are better.
We are seeing many more homeowners walking away from their properties. The fact is, taking a “Deed In Lieu” could affect your credit for years to come. You should consult an attorney or your tax consultant prior to leaving the property. We would still recommend a “Short Sale” with a Realtor who holds the certification “Certified Distressed Property Expert” (CDPE). These agents are trained in the Short Sale process and will be able to answer many questions. Many lenders are now “offering” loans to our clients after a successful short sale. One issue required to be approved is that during the process of a Short Sale, you could not miss a payment. I realize that this does not answer your question about Tax Issues, with that in mind, you should always consult your tax consultant or an attorney.
Best of luck…