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If you are you are having financial problems that lead to foreclosure or short sale, your credit report will tell the story long after you have moved on. What is the impact? Is there a difference in the impact of foreclosure vs. a short sale when you sell your home?

Recently, FICO, the company that produces the credit score used by many lenders to evaluate creditworthiness, offered some surprising answers to these questions – and added some new insights as well.

Bad news for high scorers

First, FICO sees little difference between a foreclosure and short sale. In either case, the lender received less than the balance of the loan, so the defaulting homeowner might lose from 85 to 160 points from his credit score. Why the range? The steepness of the fall depends on what the score was to start out. High scores lost more points than ones that started out low. A high 780 score would lose the 160 points, while a mid-range score of 720 would lose 130-150 points, and the low score of 680 would lose “only” 85-105 points.

The same pattern of dinging high credit scores more heavily than low ones prevails with late payments too. When 30 days late, a high score might lose 90-110 points, plus an extra 20 if they were 90 days late. Low scorers are zapped 60-80 points whether they were late by 30 days or 90.

Here’s the kicker. A borrower with a high score will not recover from a late payment for three years in comparison to only nine months for a someone with a lower credit score.

This information seems at odds with the advice of most housing counselors to pursue a short sale rather than letting the house go into foreclosure. FICO says that someone who underwent a short sale would be better off only if the lender did not report the shortfall – a difference of only 35 points.

So, why pursue a short sale instead of a foreclosure?

When you go to sell a home, a short sale offers more control over the process. They may feel depressed that they have to give up the house, but they have more of a sense of closure on a bad situation. They can plan their future more easily than with a foreclosure.

When they go to buy another home, they should be able to do so in 24 months at a good interest rate. This assumes that they have kept their payments current after the short sale.

Though most analysts claim that either default impacts the report the same, there is a difference by state as to the impact. Borrowers from some states have reported hits up to 300 points from foreclosures and 100 points from short sales.

With a short sale, the homeowner remains with the property until closing, just as in a normal sale. As a result, the home is not left vacant for long periods of time, which keeps the property values intact and reduces neighborhood vacancy rates. The lender does have to maintain the property or see the value further lessened by vandalism and theft.

Banks benefit too

The lender accepts less than loan value with a short sale, but is spared the extra legal costs of pursuing a foreclosure in court. According the Joint Economic Committee of Congress, the average foreclosure costs $77,935 while preventing a foreclosure runs $3,300; the figures for the cost of a short sale are not given, but the major costs include processing and loss on the loan, without the court costs and property maintenance.

Though both short sale and foreclosures have roughly the same impact on credit scores, a short sale has many advantages both to the seller and the lender when selling a home. Since short sales are a remedy that costs lenders less than foreclosure, some lenders may look more kindly on short sales. As short sale is considered by some to be the best way to help our country get past the housing crisis; a time may come when this philosophy might be reflected in the scores themselves.

Have you experienced a short sale or foreclosure? If so, what advice can you offer based upon your experience?
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Are you ready to sell your home fast? Call us today at 1-888-835-4758 or contact us to sell a home in hours from Express Homebuyers.

What do I do if I’m forced into selling my home but I want to avoid foreclosure? Can foreclosure even be avoided when experiencing financial troubles? Surprisingly, the answer is usually, “Yes you can avoid the legal process which strips you of your home!” Whether the end result is that you can or should stay in the home is another question. After attempting the steps to avoid foreclosure, you will be in a better position to make that call.

What are the steps to prevent foreclosure?

Seek help early – Avoiding the problem will not make it go away. The earlier you seek help, the more options you have.

Face the facts – Open your mail and respond to correspondence from your lender. If you are in a home that you can no longer afford, realistically assess whether you need to move on.

Muster your resources – Sell what don’t need that has value–a car, jewelry, household goods, etc. Try to find a second job, prioritize your spending, and see whether your family or friends will lend you money. This may seem obvious, but your effort will show your good faith to the lender.

Contact your lender – If you alert your lender of a problem, they might have programs to help, including “forbearance” (that gives you time to make up the payment, forgiveness of payment, a repayment plan, or loan notification).

Consider outside help – Housing counselors approved by HUD can review your situation at no cost, help you consider your options, and even negotiate with your lender. They can direct you to federal, state, or local programs. You can get started by calling the Homeowner’s HOPE™ Hotline at 888-995-HOPE and tell them “I need help selling my home and avoiding foreclosure!”

Look for programs that can help. Making Home Affordable, the main federal attempt to prevent foreclosure, may be the first program that comes to mind to help you obtain a loan modification if you meet the criteria. Since its inception in 2009, the program has expanded. It can address second mortgages, underwater situations, and more. Within D.C , the Homesavers Program can help unemployed homeowners. Maryland has its Hope Initiative, while Virginia has an Emergency Homeowners Loan Program, among other services.

Avoid scammers – Housing counseling to avoid foreclosure is free, but many private companies have sprung up claiming they can help you. Often these companies request high upfront fees, may take the title to your home, and don’t do as they promise. Always work through a certified housing counselor.

Need or want to move on? Here are your alternatives:

Selling my home – If your home is in good condition, and your Realtor® feels that it would command a good price in view of comparative sales figures in the neighborhood, you might consider trying a conventional sale. This might net you enough money to pay back any past debt to your lender or at least relieve you of a payment that is too high.

Consider a short sale – If your home is worth less than you owe, a short sale might be the way to go if your lender will negotiate. This will impact your credit, but not as much as a foreclosure. The process also offers you more control over your situation and saves your lender the much-higher costs of foreclosure.

Consider a deed in lieu – You can also deed the home back to the lender in return for cancellation of the mortgage. The lender will cancel the foreclosure and might even let you stay in the home until you find a place to move.

Sell my home to a third party – Companies that buy houses are equipped to move quickly to prevent your home from slipping into foreclosure.

With the help of your counselor, you may realize that you are too far behind on your payments, the home needs too much work, the payments are too high, or your home has lost too much value. Your housing counselor can help you make the transition, but you will have to give up your home. This may be hard, but will stop the foreclosure and you will then be able to move on to the next stage of your life.

If you have worked with a housing counselor, what was your experience?
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I want to sell my house fast. I can call EHB today at 1-888-835-4758 or tell us “I need help selling my home!” in hours from Express Homebuyers.

The recession may be winding down in the minds of economists, but tell that to someone who is unemployed or in the throes of foreclosure.  Even tell that to someone scanning the news, and it’s a hard sell?  Why?  The foreclosures keep on coming.  At the end of the third quarter of 2009, one in three homes was in foreclosure or delinquent, often the first step to worse things to come.  Why does the mortgage crisis continue?

New groups of people are affected. The mortgage crisis started when sub-prime mortgages crashed, but now prime borrowers are increasing as unemployment spreads.  Currently, unemployment is at 10% nationwide.

There are regional differences. Nevada, Florida, Arizona, and California, where the real estate boom was the greatest, still have skyrocketing foreclosure rates, and represent 42% of all foreclosures.  Florida alone has a 25% rate.

There is a Shadow Inventory. Large stocks of foreclosed homes – up to six million of them -have yet to be put on the market by banks.  Considering that foreclosures are still adding to the numbers, it will be several years before housing inventories are stable.

Some rescue programs are mis-targeted. Nearly 700,000 borrowers are in trial loan modification programs as a result of the Making Home Affordable program, but many thousands who are unemployed or are in negative situations don’t qualify.  The programs require that you have enough income to pay a modified mortgage and apply only to people whose “under water status “ does not exceed 125% of the loan value.

Some programs fail (and may be doomed to). The rescue programs don’t go far enough.  The payments after modification are still too high for many people, so they default later rather than sooner.  Also, the modification programs often lower interest and lengthen the time but do not decrease the principle.  People are left with the sense they are paying longer for an overpriced house.

Some well-intentioned programs may elongate the problem. Current programs that keep homeowners in their homes as renters once they surrender their deeds may be creative and compassionate, but also may delay the inevitable: the home must be sold at a later date.

Express Homebuyers can buy your home for cash.  Check our list of frequently asked questions to see how this can help you, and then call 877-804-3252 to get started.