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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.

One of life’s biggest ironies is that there is more help available for those who don’t need it than those who do. The higher your credit score, the lower your interest rate. If you are doing well and have been able to keep your credit score high and your debt low, you will be rewarded with a lower car payment, for example, due to reduced interest even though you could afford to pay more. The person who might benefit from having a reliable new car for one of those $169-a-month car payments advertised on commercials often drives away with a used car and much higher payments. Of course, those who can qualify for the cars that are $169-a-month, seldom want those and opt for other upscale models they can afford as their interest rate is lower.

As there is no law that forces companies to grant credit, much less at a cheap price, the rest of us have to, first, use what it available for us, and then, plan for the future by improving our credit scores. As mentioned in a recent article, those who seek mortgage help by using a government or lender-sponsored program suffer a credit score blow. Those who file bankruptcy or lose their home to foreclosure are penalized for years. However, any of these things can make for a fresh start.

There are a couple of ways that people in trouble can initiate their own fresh start. Many times people cannot afford to be homeowners, even with mortgage reductions. This is why short sales and even deeds-in-lieu have become a popular way of divesting oneself of a home. If the lender agrees to go with either process, you, as a debtor, can put the mortgage behind you. Assuming that you live more frugally, you can work on paying off your other debt. The downside is that the lender can come after you for the difference.

Express Homebuyers offers a similar but often better option: we buy your home for cash.  Unlike short sales, which often take months to complete, you can have your deal wrapped up within a couple weeks. We even offer you $2,500 upfront so you can use to secure your new dwelling.

Want to get yourself a fresh start? Call Express Homebuyers today at 1-877-804-5252 or visit our website for more details. We can get you started on the way to financial freedom with one phone call.  Make today the day you take charge of your future. We will make you an offer on your first call, provide free reports to help you make your selling decision, and we even offer options to chat with one of our helpful consultants.

As anyone who has watched silly commercials about people with poor credit being doomed to drive hoopties or make their living in costume at a Renaissance fair knows, a bad credit score costs you! You may be denied the card you want, a gas card, a job, or an apartment plus embarrassment, with or without costume.

If your credit score is low and you want to buy a home, how much will those credit-card funded dinners and shoes of the past cost you?  The results are amazing.

According to Credit Technologies, who spoke at a recent National Association of Mortgage Brokers seminar, the difference between having a credit score over 720 vs. 620 is an interest rate of 5% versus one of 8.75%. As the chart shows, a differing interest rate on a 30 year mortgage can have a big impact on the payments for a $125,000 mortgage, including taxes.

If your household income is about $35,000 a year, a house with $125,000 mortgage might put your monthly cost for a house at about 25%, so a payment of $853.32 might be just about right.  If your credit rating is over 760, the payment would be right there.  The lower your credit score is, the higher your payment will be.  If your score is only 620, your payment would be $200 higher.  If is it 580, your payment will be nearly $300 higher.

Needless to say, the total amount paid for mortgages also increases with the combination of a low credit score and higher interest rates.  Most people do not think about that in our mobile society where people move about every seven years, but the $127,000 difference from the highest to the lowest rating is staggering.

The most obvious thing about these numbers is that a lower credit score can put an “affordable” home based on income, out of the range of affordability.  To keep the payment around $850 dollars per month if you have a 620 score, you could only afford a mortgage of $105,000.  If your rating was under 550, you could only afford a mortgage of $87,500.

Why is this?  Banks maintain that the chance of delinquency increases as the credit score decreases.  According to BCS Alliance, a person with a 780 score has 576 to 1 odds of becoming delinquent by 90 days; a 700 score has a 288 to one chance.  At 630, the odds are 17:1; after that the likelihood increases rapidly: 616 score, 9:1 odds, 600 score 4:1 odds, and 585 score 2:1 odds.

If your card score is low, you may have the best intentions in the world, but it will be a hard sell to find a reasonable mortgage rate.  This is why it is important to start getting your credit report in order before you start looking for a home.  If you have one that is costing you too much in interest and payments, this could be a good time to sell your home and get your credit straight before taking on home ownership again.

Express Homebuyers can help you by emptying your plate of a big portion of debt within two weeks.  We buy houses fast.  Contact us today for all the details.