Preserving your Credit Throughout the Short Sale – When can a Homeowner Buy Again?

Robert Benson - Gladewater National Mortgage

I had the honor to interview Robert Benson from Gladewater National Mortgage this month.  Robert has over 17 years experience in the mortgage industry.  We had a very honest discussion regarding concerns I’ve heard from several homeowners about when exactly they can purchase another home AFTER they complete their short sale.  Robert had some excellent suggestions.  Our interview is below.

Robert Benson, Gladewater National Bank
617-224-8276
rbenson@gladewaternational.com

Robert  – With short sales, it’s important to reach out to a banker prior to short sale and with that said credit is really what we are focusing on and how it will impact buyer going forward..selling property.  The main thing I’d like to do with people short saling and looking to purchase again and set a plan with them.  I’d pull their credit, and then start the preapproval process with them to buy another home.

SSM – So you can do it THAT early in the process before the short sale starts?

Robert – Yes. I always say listen we really really have to look at this as a preapproval on a future purchase.  I know we are going to have an event, which may or may not hurt your credit, but we have to focus on what is your ability to purchase again in the future.  When we start this early, people understand we are going to guide them through this process.  Whether it’s in 12 months or 36 months, that’s the commitment we have.

SSM – So sooner is better?

Robert – People are stressed and anxious and there are so many unknowns. With all the people I’ve dealt with, I’ve seen it all.  Whether they have to file bankruptcy or whether they should pay the mortgage late or have paid it late, we can address that right away, and possibly prevent something bad from happening.  People have recommended paying the mortgage late, to facilitate the short sale process, and I’ve heard you say that before, that that’s ridiculous.  I feel the same way.  It’s just bad advice.  When you have someone who has good credit, you want to maintain that throughout the short sale process so they can purchase later.

SSM _ When a homeowner is selling, what should they know about their credit before and after the short sale and how it’s impacted?

Robert – I’m giving you two scenarios – One with a seller with perfect credit, and one with someone who is in default, credit card issues and many other credit problems – Analyzing them at the beginning helps.  If they have good credit, I highly maintain they try to keep that so all we are dealing with is one glitch on their credit.  The other scenario is the homeowner that has multiple issues on their credit.  I may recommend talking to a bankruptcy attorney – That’s something that is not an easy decision and I’m not an expert on that.  Let’s say they are looking at $30,000 in credit collections, once I analyze their income, I can see if they are even going to have the ability to pay this stuff.  I can ask if they want a fresh start.  That’s their right under the law.  They’ll have everything zero’d out.  Now we’ll have a two year plan.  Once it’s discharged, FHA allows you to purchase 36 months after bankruptcy discharge with reestablished credit.  There are a couple different opinions on bankruptcy.

SSM – What about a foreclosure with a bankruptcy?

Robert – FC is the biggest or worst thing you can do in regards to credit.  If it’s a Freddie or Fannie backed loan, it’s 7 years before you apply for another loan.  If I hear a homeowner say I’m going to let a home go to foreclosure, then that causes a huge wrinkle.  You could add years if it’s bankruptcy and foreclosure.  If someone was contemplating foreclosure I’d say, PLEASE don’t do it.  A lot of people don’t realize what homeowners are.  What I mean by that is banks look at 90 days late LIKE a foreclosure on your credit report.  That is considered preforeclosure.  It’s looked at LIKE foreclosure in the banks eyes.  Borrowers really need to know that 91 days is the cutoff.

SSM – If they want to preserve their credit, they should NOT default correct?

Robert – yes.  They need to pick and chose if money is tight, but it really does kill your credit.  At 60 days late the lender wont’ even take the payment any more.  Homeowners wanting to buy again quickly really need to not go past that mark. Pay on time if there is any way you can.  Setting a plan with a homeowner BEFORE the short sale process, will definitely help.

SSM – Now what if a homeowner has to sign a note for the balance of the loan, or a portion of the balance?

Robert – A note is like any other debt.  We will look at the payments on that and the terms.  We use that as part of their debt, like a car payment.  It will impact their debt ratio.

SSM – How should a homeowner prepare if they want to buy again in one to three years?

Robert – Setting a timeline is the key.  I spoke to someone yesterday. They were reluctant to come to the decision to rent for a year and then buy, but if you set a plan and timeline, you will have no stress in what you’re looking to do.  They wanted to move because of a school system.  That was their main goal.  I gave them a timeline.  I told them you’ll have to rent and then you’ll be ready to buy.  Throughout that whole process of renting we will monitor them, credit, income and we’ll get you ready to buy house the second that timeframe is up.  This client is 12 months away from purchase.  Just setting up a timeline is key.

SSM – Is there a difference between loans when someone is short sale, ie, Freddie, Fannie, FHA conventional, does that impact their wait time on a loan?

Robert – FHA has restrictions.  It’s 36 months.  If they short sale, they have to wait 36 months even if they are current if you don’t have extenuating circumstances.  I’ve talked to my underwriter but he will allow a homeowner to do 24 months so long as their credit is good.  With Fannie Mae they have the least amount of restrictions. If you have Fannie and 20% you can buy again in two years.  Other than that they talk about 4 years with no default with 10% down.  If there is any default I’ve been told you may need to wait 7 years.  Even though FHA is a great option for people, but it’s expensive.  Don’t go 91 days late otherwise you are eliminating options.  The PMI is going to be there the entire life of the loan.

SSM – What if they refinance?

Robert – The goal is to refinance out of an FHA loan if you can into conventional financing.  The rates today are 3.25% on a 30 year fixed on an FHA loan. Rates will stay competitive for a minimum of two years.  It’s volatile but it depends on the bond market.  If bonds do well rates will do well.

SSM – What would be your #1 tip for homeowners?

Robert – Have a good team around you.  You need a good short sale negotiator.  You need a good Realtor.  You need excellent legal advice, whether it’s bankruptcy, real estate, and of course you need a good lender.  People need to keep in mind every lender reports differently.   Ask the lender HOW they will report the short sale.

Maryann Little, VP Mitigation
http://nhshortsales.net
http://shortsalemitigation.net
Massachusetts Short Sales
New Hampshire Short Sales
3rd Party Short Sale Negotiation Services

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