Short Sale vs. Foreclosure

FANNIE MAE GUIDELINES

PRIMARY RESIDENCE

A short seller homeowner can be eligible for a Fannie Mae insured loan in a shorter time frame than in a foreclosure. The time period this can be as short as 2 years.*

If there is a foreclosure, the property owner may be Fannie Mae insured loan eligible with restrictions after 5 years, and no restrictions after 7 years.*

FANNIE MAE GUIDELINES

NON-PRIMARY RESIDENCE

A short seller investor can be eligible for a Fannie Mae insured loan in a shorter time frame than in a foreclosure— the time period can be as short as 2 years.*

An investor who has had a property foreclosed cannot get a Fannie Mae backed loan for 7 years.*

CREDIT SCORE

Late payments on mortgage will show after completion of the short sale. A short sale’s effect on a credit score can be much less than the effect of a foreclosure.

Typically will affect credit score for at least three years. As an example, some credit scores can be negatively affected between 200 and 300 points.

UNIFORM RESIDENTIAL LOAN APPLICATION QUESTIONS

(FANNIE MAE FORM 1003)

There are no questions on the form regarding a short sale.

Question C, Section VIII: Have you had property foreclosed upon or given title or deed in lieu thereof in the last years?

CREDIT HISTORY

Depending on status of payments, negotiations and on how lender reports it, a short-sale may or may not be reported on a credit history.

A foreclosure can remain on a credit history for 7-10 years or more.

SECURITY CLEARANCE

(SHORT SELLERS SHOULD CHECK WITH APPLICABLE AGENCY)

A short sale may be viewed by some employers as a less serious event than foreclosure.

Security clearances could be affected by a foreclosure event.

DEFICIENCY/UNPAID  PRINCIPAL BALANCE

In a short sale, the unpaid balance is a negotiable issue between the short seller and the lender. Through negotiation, deficiencies may in some instances be released or reduced. Where there is a deficiency, the amount in a short sale is frequently lower because the lender will usually incur fewer costs than in a foreclosure.

Typically, in a foreclosure there is no negotiation between the owner and lender. It is up to the lender (or lenders) to decide whether to foreclose. In some circumstances but not all the lender has the right to seek recovery of any unpaid deficiency balance. This is an issue requiring legal advice.