Conventional Loan Post Short Sale? Ominious Credit Reporting Trick To Watch For

Planning to finance a house in 2014? Had a previous short sale?  Pay very close attention to your credit report. There is a crediting report status that indicates foreclosure and if not handled correctly, will derail your loan attempt.
Short Sale Or Foreclosure?
Short sale-involves selling a house for less than what is owed. For example house sells for $300,000- $500,000 was owed on the property, lender is shorted the $200,000 difference. An approach homeowners took in recent years to avoid foreclosure.
Foreclosure– is essentially walking away from the property,  letting the bank take the property.
Maybe you’re purchasing another home to live in or financing an investment property?
Perhaps financing your primary home for a specific purpose?
No matter the reason the credit report from the previous lender can make or break your new mortgage. In short, lenders are obligated by law to report true and exact circumstances surrounding the previous delinquency. Lenders when reporting on a short sale, typically report “settled for less than full balance.” This languages indicates the previous property was a short sale. While lenders are required to report correctly that doesn’t always happen, all too common, credit reporting saying “settled for less than full balance, chapter 9”. This credit reporting becomes problematic in obtaining your new mortgage.

Mortgage Credit Status To Watch For Regarding Previous Short Sale

Chapter 5,8,9 are synonymous with a foreclosure- the big F Word in mortgage lending which prevents a consumer from successfully getting a mortgage two years post short sale.

Here’s the requirement: “A borrower is eligible for conventional loan 24 months post short sale at 80% loan minimum.”

How Status Affects New Mortgage Loan

All mortgage lenders run each loan through what’s called an automated underwriting system (AUS) like a search engine for mortgage lenders, but it evaluates the credit, debt, income, and assets of the consumer, and renders a preliminary approval the loan is eligible for delivery to Fannie Mae or Freddie Mac.

The chapter 5, 8, or 9 status is identified on the credit report and does not pass an automated underwrite on a conventional mortgage thereby stopping the loan before an official human underwriter reviews the file for creditworthiness.

Action Steps To Take

  1. Write the creditor reporting the erroneous credit status
  2. Include copy of the final settlement statement aka final HUD 1 (closing statement from previous property) and a copy of the grant deed  deeding the property from you to the buyer-  may need to get this information from the previous title company who handled selling your previous property
  3. Indicate in this letter whatever credit reporting status Chapter 5, 8, or 9- whichever it is so lender is aware of what needs to be corrected
  4. Wait approximately 2 months for confirmation
  5. Apply for mortgage again

Mortgage tip: if the previous property was in fact a foreclosure, a three-year window is required to get a mortgage again with as little as 3.5% equity on a primary home. 7 years must have passed for conventional financing post-foreclosure, four years with extenuating one-time economic hardship circumstances).

If you’re looking to successfully secure mortgage and you had a previous short sale, we can help start by getting a complementary mortgage rate quote now,  it is free and no credit check is required!

 

 

 

 

 

 

 

Posted in:

RELATED MORTGAGE ADVICE FROM SCOTT SHELDON

Why you should wait for your credit to improve before applying for a mortgage

Why you should wait for your credit to improve before applying for a mortgage

In the current consumer landscape, securing approval for a mortgage is a significant challenge. It’s…

why being a picky home buyer could be an issue

Why being choosy as home buyer could be problematic

You’ve decided to buy a home, you’ve gotten preapproved with a lender, your file has…

can you buy a house with less than 600 credit score?

Can you buy a house with a less than 600 credit score?

For families were looking to buy a home one of the biggest setbacks people have…

Should you buy a house or wait for the market to improve?

5 signs you should wait to buy a house

If you’re thinking about buying a home, but you’re just not sure. You’re probably better…

View More from The Mortgage Files:

2 Comments

  1. […] so it’s critical you positively maintain your other credit obligations to offset the short sale credit […]



  2. […] Other factors usually come into play during a short sale such as the possibility of a bankruptcy or another property with occupancy concerns. Here are the waiting times when seeking a new mortgage, with consideration to most credit issues. […]



begin your mortgage journey with sonoma county mortgages

Let us make your mortgage experience easy. Trust our expertise to get you your best mortgage rate. Click below to start turning your home dreams into reality today!