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Short Sale Credit Reporting

Distressed homeowner usually prefer a short sale over a foreclosure because it is supposed to be better on their credit and you can usually buy a home again sooner. However, some people are alarmed to find out that their lender has actually reported their short sale transaction as a foreclosure instead of a short sale. This is happening frequently enough that both the Federal Trade Commission and the Consumer Financial Protection Bureau are investigating this situation.

From what I understand, some lenders and credit bureaus actually have no code in the credit reporting systems for “short sale” specifically. What I often see instead is where the lender will report it as “settled for less than full balance” which is similar to a charge-off. But in some cases lenders are opting to use the code for “foreclosure” because the foreclosure process had been started, even though the final resolution was a short sale.

The major lenders and insurers of loans (Fannie Mae, Freddie Mac and FHA) all view short sales and foreclosures differently, and for the most part allow people to apply for a new home loan in as short as two years after a short sale but it can be three to seven years after a foreclosure. (There are some extenuating circumstances and new loan programs that can shorten both of these drastically.)

If you have had a short sale in the recent past, it would be a REALLY good idea to get a copy of your credit report (www.annualcreditreport.com is one option) to verify how it was reported. If you aren’t sure how to read it, contact me and I’ll be happy to sit down and review it with you. In addition, if you are applying for a new purchase loan, be sure your lender knows you did a short sale so they don’t just go by your credit report in case you are one of the ones with the incorrect reporting. If you find that your short sale was incorrectly reported as a foreclosure, you can file a complaint here: www.consumerfinance.gov (although there is no guarantee that will fix the issue).

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Cheaper Alternative to FHA?

The leader in the low-down payment arena is the Federal Housing Administration (FHA), who handles an overwhelming majority of these types of loans. They were who you go to when you only had limited funds for a down payment because they were either the only source for these loans, or they were the only “affordable” source. However, that may be changing soon due to some recent changes at FHA. Just a month or two ago their fees went up for the third time in less than two years. They have raised both their up-front AND monthly fees.

There were two reasons for them to raise fees. The first is because their insurance fund is dangerously low due to loan defaults, so they have to raise more funds to shore up that account. But the other reason they did it is because FHA has a publicly-stated goal to REDUCE their presence in the lending environment. When the mortgage meltdown happened, nearly all the private mortgage insurance companies either left the business, or scaled back their presence in a major way. So FHA stepped in to support the market as a “lender of last resort.” It worked, but almost too well because now the government is insuring the majority of home loans made.

So they are raising fees at the same time that some of the private mortgage insurance (PMI) companies are stepping back into the market and in many cases you can now get a better deal using PMI versus using FHA. We are talking thousands of dollars over the course of your loan. On top of the difference in fees, there is another huge difference between the two. With PMI, when the value of your home rises enough, you can cancel the PMI and stop paying that fee. But that is no longer the case with FHA. Another recent change at FHA is that the only way to stop paying the monthly FHA insurance premium is to refinance the whole loan. This costs you more money, more hassle, and what if rates go up by then? You’d have to take a new loan at a higher rate. So if you are shopping for a loan and you have less than 20% down, be sure to ask you lender about ALL your options, and have them run scenarios for FHA vs. PMI.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Good News For Buyers!


If you lost a home through a foreclosure, bankruptcy deed-in-lieu or short sale recently and have been biding your time to wait the 2-5 years until you can buy a home again, there is some good news for you! The Federal Housing Administration (FHA) just released some new guidelines for lenders which could allow you to qualify to buy another home in as short as 12 months!

The old rules said that you had to wait at least three years before qualifying for an FHA loan. That could be shortened to two years if you could prove “unforseen circumstances.” But these new rules shorten that even further, although the burden of proof is even higher. Below are the requirements:

You must be able to prove that you lost your home because of a loss of income or employment that was beyond your control, and that the income of borrowers on your old loan dropped at least 20% for a period of at least six months. In addition, you have to undergo housing counseling from a HUD certified counselor. And on top of all that you have to have no late payments on any other obligation for the preceding twelve months.

They will need written verification of all of the above. This means they’ll need to see a termination or income reduction letter, plus they’ll review your tax returns for that year, and you need to provide written proof that you completed the counseling. They may require more documentation for certain situations.

Please note that the above just means that you can APPLY for a loan sooner. There is no guarantee that you will be approved. And since we still have VERY low inventory around here, there is no guarantee you can actually BUY a home.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). #1 in Brentwood listings sold since 2000. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

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