Purchasing After a Short Sale

Those who have undergone a previous short sale need to pay careful attention to their credit report to make sure it was reported accurately by the lender, especially if they want to apply for a new home loan anytime soon. The short sale may erroneously appear on their credit report as a foreclosure, a blemish that could haunt them much longer and prevent them from obtaining a new loan because it’s a red flag to a lender. Typically, when lenders report on a short sale, they’ll say, “settled for less than full balance.” That’s a key indicator for a buyer’s new lender to see because it shows that the previous property was a short sale, not a foreclosure, according to Credit.com.

Lenders have the responsibility to report accurately to the credit bureaus. Credit.com says these credit report codes will also hamper a borrowers’ ability to qualify for a home loan any time soon: Chapter 5, 8, or 9 – which are often synonymous with a foreclosure. A short sale borrower is eligible for conventional loan financing 24 months after a short sale at 80 percent loan-to-value or lower. If it’s a foreclosure, however, they may have to wait up to seven years to qualify for a conventional loan, or four years if they can prove it was a one-time economic hardship situation that caused the foreclosure.

Borrowers who have the short sale inaccurately noted in their credit report will need to contact the creditor and likely supply a final settlement statement showing the previous property was a short sale, as well as a copy of the grant deed transferring the property from them to the buyer.

Source: Credit.com