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My home is currently worth $55,000 but we owe $127,000. Our home was purchased in 2006 on a Conventional, 30 year 6.5% loan. The loan is not a Fannie or Freddie Mac owned loan. Our loan-to-value ratio is 192%.

We are planning to short sale. However, we are current on all of our payments, but the house is a 2BR/1BA home with a 1 car garage (1050 sq ft) that we have been trying to rent in order to avoid a short sale, but have not received any offers. I think we are priced too high for what we have.

So we are planning on doing a short sale. If we have a credit score of 700, how much will a short sale affect us to the point of preventing us from getting a VA Home Loan later? I am a military veteran.

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    They may not let you short sell it until you are behind on payments. They only short sell if the bank doesn't think they are going to get their money. You also need to make sure in the agreement to short sell that they agree not to chase you for the difference. If you have a lot of assets or a good income they may sue you to make up the difference between the loan balance and the sale price. I wouldn't do it unless I had no other option, it's practically a foreclosure. – Move More Comments Link To Top Jul 3 '12 at 21:11
  • Why are you selling now? Are you moving to another city? Renting another place? – mhoran_psprep Jul 3 '12 at 23:24
  • @mhoran_psprep: My house is too small for four people. It only has 1 BA between three females and one male. I am going to move in with family to try to offload some debt. – Brian Jul 4 '12 at 1:04
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From MyFICO:

A foreclosure remains on your credit report for 7 years, but its impact to your FICO® score will lessen over time. While a foreclosure is considered a very negative event by your FICO score, it's a common misconception that it will ruin your score for a very long time. In fact, if you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as 2 years. The important thing to keep in mind is that a foreclosure is a single negative item, and if you keep this item isolated, it will be much less damaging to your FICO score than if you had a foreclosure in addition to defaulting on other credit obligations.

(personal note - I tip my hat to you, sir. Regardless of party, we owe our Vets a debt of gratitude. If I had my way, a VA loan would ignore the past short sale. I wish you well. And thank you for serving)

  • So in this case, foreclosure is synonymous with short sale? – Brian Jul 3 '12 at 20:21
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    Sorry, yes, elsewhere on the site it says they are equivalent. Better than bankruptcy, as it's confined to the mortgage only. The rest of your credit report inputs can remain strong. – JoeTaxpayer Jul 3 '12 at 20:29
  • A little update.. it has been almost two years. My credit score did not rebound to it's original value before the short sale, but it is in the 700's and I managed to eliminate 90% of my debt. We are going to buy another house in November. – Brian Jul 6 '14 at 12:57

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