How a Short Sale Can Save Your Credit

Is your bank refusing to modify your loan and lower your interest rate?

As a real estate professional, my heart goes out to you if you are going through this struggle of attempting to keep your home.  

If your situation is like many others, your mortgage rates have become too high, you can't afford the monthly payments, and/or you are upside down on your home.

If the bank won't modify your loan or if you don't qualify for a refinance to a new loan, you need to look at the next best steps to take to help you recover for your future.

A family that I am currently representing was in a terrible dilemma.

They were not able to make their loan payments due to an increase of their interest rate (they have an adjustable loan) and because the husband was forced into an early retirement due to health reasons.

This family did the right thing by being proactive in contacting the bank to explain their hardship. They asked for a loan modification in hopes of changing their loan to a more manageable rate and payment.

In most cases, the bank will understand this hardship and do their best to modify the loan. In this case, the bank informed them that they would NOT get the modification and would be foreclosed on if they continue to not make their payments.

When we met, I explained that we needed to request that the lenders accept a short sale. This means that the home would be sold at an amount that was less than the loan, and the lenders would agree to accept that amount as payment in full. 

This will prevent their home from being foreclosed, which will prevent a major hit on their credit.  

A short sale will affect your credit score too, by approximately 100 points. However, with a foreclosure, your credit score will drop by approximately 280 points.

After a short sale it will take about two years before being able to qualify for another mortgage; after a foreclosure, it will take about five to seven years.

As you can see, coming out of this situation, the most important thing to do is to maintain your credit as much as possible. This will help you move on to the next chapter in your life, since you will use that credit score to get hired for a job, receive security clearance, obtain auto loans and for future home purchases.

For the family discussed above, we recently listed their home for sale and received immediate interest and an offer to purchase the home. This family now has hope and can plan for their future, lifting a heavy burden from their shoulders.