Many people struggling to pay the mortgages are motivated to consider a short sale. I am often told that it is considered because of their concern that if a short sale is not done, and the property is allowed to foreclosure, they will never be able to own a home again. Today, I want to tackle the perception of that…and present a bit of reality, from my point of view.
Perception: A homeowner falls behind on their mortgage and that fact is already appearing on their credit report. They know that it is difficult to get a mortgage…although up to now, they have “always had perfect credit.” They are concerned that if they allow the house to slip into foreclosure – rather than have it go to a “short sale”, somehow they will never get approved for a mortgage. Ever.
Reality: As of February 2010, unless you have a really good credit score and a substantial down payment (such as 20%), you’re not going to get approved for a conventional mortgage any time soon. Let’s assume our homeowner Bob – who sold his house in a well documented short sale – now wants to purchase a home worth $350,000. Even with good credit, he’s going to need at least $60,000 as a down payment to get a payment that he can afford. If he doesn’t have any cash at all, he cannot expect a loan any time soon.
What people like Bob can focus on is how they use credit after their foreclosure…or a bankruptcy (assuming it’s the best option). If Bob has a car loan and if he makes those payments on time and never be late – that will boost his credit score. He can start saving… bank that money instead of spending it. He’ll clip coupons. And he can start making some choices that will help him save like instead of going to the movies, he’ll rent. Bob’s best chance to get a mortgage and own a home again will depend now on those things he can control.
Bob cannot control the economy. Sure, the overall economy might improve sooner than many skeptics say, and we might see some relaxing (or re-relaxing as the case may be) of credit standards. Things could will eventually change. I don’t now know how they could, and I’m not really sure when. Remember, I don’t have a crystal ball.
Related posts:
- Are Short Sales Just Silly?
- When Should You Start Thinking About Doing a Short Sale?
- The Short Sale Option
- A Warning for Homeowners Facing Foreclosure
- Refinance Reality Check
Tags: credit, Credit and Debt, Credit Report, mortgage, Mortgage and Foreclosure, Mortgages and Foreclosures, Short Sales, What About Bob?
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