How Does a Short Sale Affect Credit?

I was recently asked how selling a home as a  “short sale”  affects credit score and future homeownership potential.

I found that the impact can vary quite a lot,  because it depends on circumstances leading up to the short sale as well as how the lender reports information.

Unlike foreclosure, there is no way for a lender to code a “short sale”  for the credit data repositories.

If you never make a late payment and your lender agreed to terms as a short sale, there may be no adverse information reported to the credit repositories.  You would need to call your lender and see what they would agree to.

When you go to buy your next home, if the new lender knows you sold in a short sale, they can require you to wait a minimum of 2 years to 4 years before you get another mortgage, again, depending on the circustances of your previous and subsequent credit history.

Links:
Zillow thread: Short Sales NOT Negatively Reported
Experian (credit repository): A mortgage short sale and your credit report

Consumer Booklet – Revised

HUD has released a new version of its consumer booklet that  includes an explanation of the new Good Faith Estimate disclosure form and rules.  The booklet is so new that printed copies are not widely available yet, but you can download it online from the HUD website.

Link to Buying Your Home: Settlement Costs and Helpful Information

Mortgage Underwriters “Getting Butts Kicked”

If you, as a borrower or Realtor, have been suprised by the depth of information asked from you, you might gain insight from the Mortgage Process Blog written by an FHA underwriter.

An underwriter is the person who personally signs off on your loan when it is approved.  Underwriters who are authorized by HUD to underwrite FHA loans have a  ”D.E.” designation, which is quite valuable at this time when FHA loans are in demand;  and they risk losing the designation if their underwriting is determined to be substandard. 

Lending decisions are no longer made by computers.   A loan file is documented to provide as clear a picture as is possible, and an individual person looks it over and makes a decision.  Getting a mortgage approved and closed is a longer process, and a more intensive process, than it was two years ago, and adjusting is painful.  

But I’m glad that HUD is focusing on their mission and their responsibility to the taxpayers.  And I’m realizing that we are lucky to have access to high-balance, 30-year mortgages at all.

VHDA Offers 2nd Mortgage to First Time Buyers

UPDATE: I understand that few lenders are offering this 2nd mortgage program, due to the difficulty of updating financial disclosure software to accomodate this temporary program.

For Virginia prospective homebuyers who have not owned a home in the last three years and otherwise qualify, VHDA  is offering a second mortgage that will fund the FHA 3.5% downpayment, and it can be used as an advance on the  $8000 Federal tax credit.

I’m attaching the VHDA flier detailing the program, but here are highlights and more links:

Home price: Must not exceed VHDA maximum for area; $293,900 is the maximum for the Charlottesville MSA

Income: Must not exceed VHDA maximum
For the Charlottesville MSA, the income maximum is $63,300 for 1-2 people or $73,000 for households of 3 or more;

Qualifying Ratios: 31% income/ 43% debt

Credit Score minimum: 620

Assets: Borrower MUST have 1% of the purchase price verified in a bank account as their own funds.

Income and Sale Price Limits vary by region.

Other VHDA requirements

VHDA Homeownership Class is Required, and,
Can be taken online, with 30 days to complete.

To check current VHDA rates (remember to click the “more financing options” link for other rate/point combinations). 

Credit Card Legislation Benefits Consumers

Here is a good explanation of the proposed changes in regulations for the credit card industry.

This Week: City Offers Deck Safety Evaluations

Is the wooden deck on your home structurally sound?

The City of Charlottesville is offering free inspections of wooden decks on city homes this week, as part of a Building Safety Week.   To get your deck evaluated, call the city at 970-3331.

100% USDA Financing with Income to $83,750

The USDA “guaranteed” rural housing program has updated its 100% financing program for homes located in non-urban areas.

USDA sets an income maximum, searchable on their website (where you can also look up property eligibility by address).   Recently program terms were simplified so that, in the Charlottesville area,  households of up to four persons can make up to $83,750 and still be eligible for this 100%, no-PMI financing. 

Funds are currently available for the program; subscribe to the USDA’s “Origination News” to find out about funding levels for the program as well as other updates from the agency.

See this Previous post on USDA 100% financing.

Resources for the 2009 HomeBuyer Tax Credit

If you are wondering if and how you can make use of the First Time HomeBuyer Tax Credit in 2009, this  Frequently Asked Questions on the tax credit from the NAR website is very helpful.  

Changes Abound on New Tax Forms from the WSJ includes a good overview of the revised Home-Buyer Tax Credit provisions.

You’ll also need the new Form 5405.

Home Value Down? “DU Refi Plus” May Avoid PMI

The March 4 announcement of the Treasury’s “Making Home Affordable” program includes some relief for borrowers who are not delinquent on their mortgage but who have not been able to take advantage of recent lower rates because their 20% equity position has been eroded. 

Under the old rules, with property values down from their peaks, people who bought with 20% down within the past 2 years had to consider that their home might be worth less than when they bought it.  If so, they would have to choose between paying PMI or paying down principal to get back to 80% – in addition to paying the costs of refinancing –  if they wanted to refinance with no PMI. 

The new DU Refi Plus program’s (available after April 4)  benefit is to eliminate PMI for Fannie/Freddie loans that originally had 20% down.  Regardless of the current value, they will not have to pay PMI if they didn’t have to originally – within the cap of 105% on the total loan-to-current value ratio.  The program also reduces the rate ”add-ons” previously applied due to credit scores, so you might find you are offered a better rate under the new terms. This program cannot be used to take cash out of the property, but you can refinance existing debt and include closing costs.   You can go to any lender to use the DU Refi Plus program -  you do not have to go back to the servicing lender. 

 (Now, if rates would only go back down!)

If the buyer originally used a combination of 2 loans to circumvent the need for PMI, however, the 2nd lien holder will need to agree to re-subordinate their lien to the new 1st mortgage, and this will be problematic in many cases where the 2nds are greater then $50,000 (for Virginia properties).  A phone call to your 2nd lien holder will tell you their policies for resubordination.  Fannie Mae’s terms do not allow a new 2nd lien, nor can the old 1st and 2nd be combined.

Notable exclusions include loans that originally included an interest-only feature, and Government (FHA or VA) loans.

The Costs of Waiting

Well do I know that lots of people have been waiting out buying or refinancing, waiting to see what the government would come up with to support the housing market.   I was glad to see that fact noted as the cause behind the headline, which was “January Existing Home Sales Fall By 5.3 Percent“.

We were led on, and it hurt us.  There will be no blanket, below-market  ”government interest rate.”   Interest rates, while still very good, are higher now than they were in January.  The housing market was only hurt as the waiting buyers stayed away in droves.

(Here’s a Bloomberg article, Fed Lacks Consensus on Treasuries as Yields Rise, that explains what Fed action is being considered, and how interest rates might react.)

If all who are able and ready to buy a home will just go about their lives, we can get through this.  The world runs on faith, and we need to summon ours.

Now, we have our $8000 first-time-buyer tax break.  Changes Abound on New Tax Forms from the WSJ includes a good overview of the revised Home-Buyer Tax Credit provisions.  You’ll need the new Form 5405.

Please,  don’t wait for imaginary rates, don’t wait for your dream home to go into foreclosure so you can get a jump on those still-imaginary future prices.  Or will we boycott our way into real trouble?