Foreclosure and your Credit

Our clients often ask us how a foreclosure will impact their credit report. Sadly, there is no cookie-cutter answer for that question because every foreclosure and every personal credit profile is different. We've often heard from the experts in the field of credit reporting, including a report done by Christopher Rockey of Mortgage Resolutions (based on personal interviews with each of the three main credit bureaus), that foreclosure is the single most devastating thing that can be reported - possibly worse than even a bankruptcy. Some say that it can weigh down you credit scores by hundreds of points for many years. We can't purport that we have any special knowledge or way to verify the exact effect on your credit. What we can tell you is that if you have the ability to avoid a foreclosure via a short sale, you will be spared to a great degree. We've been told that over 100-200 points difference will be noted on credit reports initially, but we cannot verify that. More important than your score, is when you can buy a home again. Below you can see exactly what the major lending guidelines say about ones ability to buy a home again, and when.

The three main set of underwriting guidelines for mortgage applications are FHA, Fannie Mae and Freddie Mac.

	FHA	FANNIE	FREDDIE
FORECLOSURE	3-YEAR WAIT TO BUY AGAIN *IF RE-ESTABLISHED CREDIT, MAYBE CONSIDERED FOR REDUCED WAIT	7-YEAR WAIT TO BUY AGAIN *MAYBE REDUCED TO 3 YRS UNDER CERTAIN CIRCUMSTANCES. AT LENDERS DISCRETION	5-YEAR WAIT TO BUY AGAIN *MAYBE REDUCED TO 3 YRS UNDER CERTAIN CIRCUMSTANCES. AT LENDERS DISCRETION
SHORT SALE	NO WAIT IF NOT IN DEFAULT AT TIME OF SHORT SALE CLOSING 3-YEAR WAIT IF IN DEFAULT AT TIME OF CLSOING *REDUCED WAIT TIME AT LENDER DISCRETION	2-YEAR WAIT (20% DOWN PAYMENT MINIMUM) 4-YEAR WAIT WITH 10—19.99% DOWN PAYMENT 7-YEAR WAIT WITH <>	4-YEAR WAIT *POSSIBLY 2-YEAR AT LENDER DISCRETION

*if a borrower can show that the circumstances of their foreclosure or short sale were extraordinarily out of their control, they may be considered for reduced wait time to purchase a new home.

As you can see from the chart above, working the debt out with your lender by cooperating with a short sale is far better than allowing the foreclsoure take place with no intervention. This is of course only if buying a home in the near future is a goal of yours.