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Short Sales And Credit Scores – Short Sale Education

A couple of months ago, I wrote the blog “Bankruptcy, Foreclosure, or Short Sale? What happens to my Credit Score?” This month, I’d like to give an update on Short Sales and Credit Scores.

Credit Score:Drops score approximately 60-100 points
Length of Time on Credit Report:7 years
Buying Another Home: Qualify for a mortgage with a decent interest rate after 18-24 months

Note: There are several caveats when it comes to a short sale because short sales are relatively new and credit bureaus are still trying to figure it into their credit risk modeling. In fact, in the future, it has been analyzed that some lenders may look at a short sale the same as a foreclosure.

Above states an 60-100 point hit for a short sale and this hit does depend on how many payments were missed prior to the completion of a short sale

For a short sale, it has been reported that a credit report will show Satisfied with a note that states “Creditor settled for less than the amount due”. If you are lucky, you will just get “Paid In Full”. This does not happen often. Most likely, a short sale will show as a charge off or a settlement

Lenders using the Fannie Mae and Freddie Mac mortgage approval system will see mortgage payments that are 120 days late or receipt of a Notice of Default the same as a foreclosure

Many lenders may not consider a short sale unless the homeowner is late, but more are considering a short sale even if the homeowner is not late with a convincing and full proof of a hardship

Homeowners who have a mortgage under water are more inclined to try a short sale ”short sale” before throwing their hands in the air and going to foreclosure or go through bankruptcy. In 2009, the National Association of Realtors estimated that about ten percent of all sales last year were short sales and it is expected to increase this year.

With Obama’s HAFA program, lenders are provided incentives to perform short sales and so are homeowners because under this program they would receive $1500 for relocation costs.

There is still a lot of confusion around how a Short Sale Secrets will affect a borrower’s credit score. It really depends on how many lates a homeowner has had on their mortgage and how the lender decides to report it to credit agencies, Experian, Equifax, TransUnion.

The main point that homeowners should realize is that if they are successful on doing a short sale to get out of their situation, the road to credit recovery is shorter than if they went to foreclosure. Protecting ones credit score will help to minimize the amount of interest a borrower pays on credit cards an loans.

It has been reported that a homeowner would be able to buy a home after 2-3 years, given they continue to work on their credit after a short sale. If they went to foreclosure, they would have to wait as long as 7 years.

Many homeowner are frustrated on figuring out how to resolve their mortgage being underwater and many are just walking away but this is a mistake. A homeowner can ask for a short sale even if they are not late on their mortgage, but the reality is that a lender has no incentive to allow a short sale if payments are still being made on time.

There are some states that do not allow lenders of 1st mortgages to pursue a seller for the unpaid balance. But in all states, second liens and equity credit lines can pursue the seller unless an agreement has stated otherwise. Borrowers will have to pay tax of any unpaid mortgage balance unless they meet IRS’s home exclusion or insolvency rules. Owners of second or investment properties do not qualify for the home exclusion rules.

Look out for our future blogs/articles from our Short Sale Leadership Series content.To view our blog updates, visit www.whbsolutions.com/blog.

Article Source: http://www.articlesnatch.com

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For more information on becoming a Short Sale Education Leader in your community, join WHB Solution’s community of Short Sale Success and join short sale experts at www.whbsolutions.com/members

What s a Home Warranty

A home warranty is a service contract, normally for one year, which helps protect home owners against the cost of unexpected covered repairs or replacement on their major systems and appliances that break down due to normal wear and tear. Coverage is for systems and appliances in good working order at the start of the contract.

Check your home warranty policy to see which of the following items are covered. Also find out if the policy covers the full replacement cost of an item.

  • Plumbing
  • Electrical systems
  • Furnace
  • Water heater
  • Heating ducts
  • Water pump
  • Dishwasher
  • Garbage disposal
  • Stove/cooktop/ovens
  • Microwave
  • Refrigerator
  • Washer/dryer
  • Swimming pool (may be optional)

Source: American Home Shield, www.ahswarranty.com, REALTOR Benefits Partner

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

7 Reasons to Own Your Home

1. Tax breaks. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, your property taxes, as well as some of the costs involved in buying your home.

2. Appreciation. Real estate has long-term, stable growth in value. While year-to-year fluctuations are normal, median existing-home sale prices have increased on average 6.5 percent each year from 1972 through 2005, and increased 88.5 percent over the last 10 years, according to the NATIONAL ASSOCIATION OF REALTORS . In addition, the number of U.S. households is expected to rise 15 percent over the next decade, creating continued high demand for housing.

3. Equity. Money paid for rent is money that you ll never see again, but mortgage payments let you build equity ownership interest in your home.

4. Savings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.

5. Predictability. Unlike rent, your fixed-mortgage payments don t rise over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will increase.

6. Freedom. The home is yours. You can decorate any way you want and benefit from your investment for as long as you own the home.

7. Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.

Online resources: To calculate whether buying is the best financial option for you, use the  Buy vs. Rent calculator at www.GinnieMae.gov.

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

Loan Types to Consider.

Brush up on these mortgage basics to help you determine the loan that will best suit your needs.

Mortgage terms. Mortgages are generally available at 15-, 20-, or 30-year terms. In general, the longer the term, the lower the monthly payment. However, you pay more interest overall if you borrow for a longer term.

Fixed or adjustable interest rates. A fixed rate allows you to lock in a low rate as long as you hold the mortgage and, in general, is usually a good choice if interest rates are low. An adjustable-rate mortgage is designed so that your loan s interest rate will rise as market interest rates increase. ARMs usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. These types of mortgages are a good choice when fixed interest rates are high or when you expect your income to grow significantly in the coming years.

Balloon mortgages. These mortgages offer very low interest rates for a short period of time  often three to seven years. Payments usually cover only the interest so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.

Government-backed loans. These loans are sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the Department of Veterans Affairs (www.va.gov) and offer special terms, including lower down payments or reduced interest rates to qualified buyers.

Slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment. For help in determining how much your monthly payment will be for various loan amounts, use Fannie Mae s online mortgage calculators.

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

What You Can Do to Improve Your Credit

Credit scores, along with your overall income and debt, are big factors in determining whether you ll qualify for a loan and what your loan terms will be. So, keep your credit score high by doing the following:

1. Check for and correct any errors in your credit report. Mistakes happen, and you could be paying for someone else s poor financial management.
2. Pay down credit card bills. If possible, pay off the entire balance every month. Transferring credit card debt from one card to another could lower your score.
3. Don t charge your credit cards to the maximum limit.
4. Wait 12 months after credit difficulties to apply for a mortgage. You re penalized less for problems after a year.
5. Don t order items for your new home on credit  such as appliances and furniture  until after the loan is approved. The amounts will add to your debt.
6. Don t open new credit card accounts before applying for a mortgage. Too much available credit can lower your score.
7. Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.
8. Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.

This information is copyrighted by the Fannie Mae Foundation and is used with permission of the Fannie Mae Foundation. To obtain a complete copy of the publication, Knowing and Understanding Your Credit, visit www.homebuyingguide.org.

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

Common Closing Costs for Buyers

You ll likely be responsible for a variety of fees and expenses that you and the seller will have to pay at the time of closing. Your lender must provide a good-faith estimate of all settlement costs. The title company or other entity conducting the closing will tell you the required amount for:

Down payment
Loan origination
Points, or loan discount fees, which you pay to receive a lower interest rate
Home inspection
Appraisal
Credit report
Private mortgage insurance premium
Insurance escrow for homeowner s insurance, if being paid as part of the mortgage
Property tax escrow, if being paid as part of the mortgage. Lenders keep funds for taxes and insurance in escrow accounts as they are paid with the mortgage, then pay the insurance or taxes for you.
Deed recording
Title insurance policy premiums
Land survey
Notary fees
Prorations for your share of costs, such as utility bills and property taxes

A Note About Prorations: Because such costs are usually paid on either a monthly or yearly basis, you might have to pay a bill for services used by the sellers before they moved. Proration is a way for the sellers to pay you back or for you to pay them for bills they may have paid in advance. For example, the gas company usually sends a bill each month for the gas used during the previous month. But assume you buy the home on the 6th of the month. You would owe the gas company for only the days from the 6th to the end for the month. The seller would owe for the first five days. The bill would be prorated for the number of days in the month, and then each person would be responsible for the days of his or her ownership.

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

5 Things to Know About Title Insurance.

Title insurance protects the holder from any losses sustained from defects in the title. It s required by most mortgage lenders. Here are five other things you should know about title insurance.

1. It protects your ownership right to your home, both from fraudulent claims against your ownership and from mistakes made in earlier sales, such as mistake in the spelling of a person s name or an inaccurate description of the property.

2. It s a one-time cost usually based on the price of the property.

3. It s usually paid for by the sellers, although this can vary depending on your state and local customs.

4. There are both lender title policies, which protect the lender, and owner title policies, which protect you. The lender will probably require a lender policy.

5. Discounts on premiums are sometimes available if the home has been bought within only a few years since not as much work is required to check the title. Ask the title company if this discount is available.

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

Moving Checklist for Sellers.

___Provide the post office with your forwarding address two to four weeks ahead of the move.

___Notify your credit card companies, magazine subscriptions, and bank of your change of address.

___Create a list of friends, relatives, and business colleagues who need to be notified about your move.

___Arrange to disconnect utilities and have them connected at your new home.

___Cancel the newspaper, or change the address so it will arrive at your new home.

___Check insurance coverage for the items you re moving. Usually movers only cover what they pack.

___Clean out appliances and prepare them for moving, if applicable.

___Note the weight of the goods you ll have moved, since long-distance moves are usually billed according to weight. Watch for movers that use excessive padding to add weight.

___Check with your condo or co-op about any restrictions on using the elevator or particular exits for moving.

___Have a  first open box with the things you ll need most, such as toilet paper, soap, trash bags, scissors, hammer, screwdriver, pencils and paper, cups and plates, water, snacks, and toothpaste.

Plus, if you re moving out of town, be sure to:

___Get copies of medical and dental records and prescriptions for your family and your pets.

___Get copies of children s school records for transfer.

___Ask friends for introductions to anyone they know in your new neighborhood.

___Consider special car needs for pets when traveling.

___Let a friend or relative know your route.

___Empty your safety deposit box.

Put plants in boxes with holes for air circulation if you re moving in cold weather.

Reprinted from REALTOR magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS .
Copyright 2008. All rights reserved.

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Daniel Andrade, REALTOR® DRE #: 01849983
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