What Impact Does Your Credit Rating Have On A Short Sale?
Print View - Published: Mon, 17 Jan 2011 at 9:44 PM
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Lenders don't like it when a debtor does not fulfill their promise of repayment, and they are quick to keep each other informed of who does and does not pay by reporting to credit bureaus. A report filed against a person for non-payment of a loan would be available to any financial institution that's considering providing a loan, meaning that they might decide against lending the money out of worry of not being repaid.
Although a short sale might not be considered as severe as a foreclosure, there are still credit rating implications incurred. Additional points are incurred if the seller was delinquent on their loan before the sale and by how much. It's possible that a negative impact on a credit rating could be prevented all together on a short sale since in some cases, the debtor is able to take out another loan to cover the outstanding amount. However, if the reason for the short sale is that the house owner can no longer afford to repay the loan, then it is highly unlikely that such a loan will be granted.
A lender might even sue the person for the outstanding amount but in the case of delinquency, the borrower will not be able to pay. The lender is more likely to utilize this loss as a tax write off, in this case. This would still be registered as revenue though, meaning that the borrower could find themselves with a tax bill. If a seller of a short sale home does agree to recoup the outstanding amount then this might even increase their credit rating, again despite the fact that this is unlikely to happen in the case of a person who cannot repay the original loan.
If a seller was current on their loan while short selling their property, and they agreed to repay the debt relief, then the seller can apply for a new house immediately if they wish to do so. It's not the fact that they short sold their house that the lenders don't like, it's simply down to the issue of payment.
There is still a benefit even for those who do have delinquencies on their loan before a short sale to deciding upon a short sale over a foreclosure since after a short sale, the seller could purchase another house after 2 years as opposed to 5-7 years for a foreclosure.
Though, at the end of the day, the decision on whether or not a loan is granted relies on how confident the lender is that they will be paid back. Because of this a borrower might have to agree to an increased interest rate if the lender considers them to be a higher risk, although the rules of this are at present stricter as it was a factor that contributed to the sub-prime loan crisis. What is likely though is that considering the latest economic crisis and the fact that so many people lost an income, and with it the ability to pay through no fault of their own, then the lender may not look down on this as much as they'd if it happened in a healthy economy.
About the Author
Are you willing to invest in property investment and confused where and how to get helpful information? Visit http://www.shortsaleology.com where in you can find all the details.
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