Is a Short Sale Right for you?

If you've been unable to keep up with your mortgage payments, it might seem like your only option is foreclosure.  There is, however, another option.

You may be able to do a short sale on your home before foreclosure.  Here are the advantages & disadvantages to consider before doing a short sale.

What is a short sale?

A short sale is when a property is sold at a lower price than the amount the homeowner owes on the mortgage, & the mortgage lender agrees to the "short" payoff.  Banks & lenders have specific rules on which properties qualify fort a short sale.  If you decide on attempting a short sale in lieu of a foreclosure, call your lender.  You will need official approval, as the lender is agreeing to a discounted payoff.

Pros & Cons

The advantages of a short sale:

• Your loan will be considered paid in full.
• You'll avoid foreclosure.
• A short sale has a smaller impact on your credit.
• After a short sale, you may be able to buy another home sooner than you would with a foreclosure.

The disadvantages of a short sale:

• You take full responsibility for the sale of your home, which can be time-consuming.
• If you find a buyer quickly, you have have to move sooner than expected.
• All proceeds from the short sale go to the lender.

Impact on your credit

A foreclosure puts a serious black mark on your credit history that will last for seven years & hamper your ability to get loans & credit in the future.  There is also a time limit after a foreclosure in which you will not be allowed to buy another home.

A short sale doesn't have the same impact as a foreclosure, but your credit will still be damaged & you may struggle to find a lender that is willing to give you another mortgage soon after a short sale.

Getting help

If you're unsure whether a short sale is right for you, speak to a real estate attorney.  A real estate attorney can review your situation & help guide you to the best solution.  You can also peak to your lender.  Your lender has specialized loan officers who are able to review & guide consumers at risk of foreclosure.

Shared from:  Susan Wellish www.realtor.com

Preparing Your Credit to Buy a Home

As the housing market heats up in 2013 and more consumers consider buying a home, it’s important to consider the role that your credit score plays in your ability to secure a mortgage. Conventional mortgage lenders will typically want a FICO score of at least 720, or in some cases 740, but those with a score below 700 may still qualify for an FHA loan.

With that in mind, here’s a look at the steps you should take to prepare your credit before applying for a mortgage.

1. Review your credit report.

Several months before you plan to get a mortgage, check your credit report for any issues. If you generally pay your bills on time, then check your credit two to three months in advance just in case you need to correct any mistakes, says Carolyn Warren, author ofMortgage Rip-Offs and Money Savers and Homebuyers Beware. For those who know they have late payments or other derogatory items on their account, Warren suggests starting six to nine months in advance to clear up those issues.

2. Dispute any inaccuracies.

If your credit report contains errors—for instance, there’s an unpaid item that you’ve actually paid or an account showing up that isn’t yours—you’ll want to file a dispute with the credit reporting agency. A report from the FTC earlier this year shows that roughly a quarter of the reports examined by the commission contained at least one “potentially material” error.

3. Make sure you have several tradelines.

Conventional loans require at least three tradelines (any combination of credit cards, student loans, car loans, and so on) that have been active within the past 12-24 months. FHA loans require two tradelines. It’s fine to have more, but if you have fewer, you won’t qualify for a mortgage. If you need to open additional tradelines, Warren suggests getting a major credit card like a Visa or a Mastercard (not a store credit card) at least six months before you apply for a mortgage and using it for items you would buy anyway. “Never charge more than 30 percent of your allowed limit, and pay it off in full every time you get your bill,” she adds.

4. Leave older credit lines open.

Older, more “seasoned” tradelines help boost your credit score, so leave those credit cards open even if you don’t use them all the time. “A lot of people think, ‘I’ve got six credit cards, I’m going to close the four that I don’t use,’” says Warren. “But that’s a big mistake because your good accounts are adding positive points to your score.” Try to use those credit cards every few months and pay the balance in full so those tradelines remain active.

5. Avoid opening new credit lines.

Once you’re six months away from applying for a mortgage, stop opening new credit lines, as this can temporarily lower your score. “The credit bureau doesn’t know how you’re going to handle that new credit, so because there’s that uncertainty, it’s a risk factor,” says Warren. “Lowering your credit score is not worth that 10 percent discount you’d get from a department store for opening a new credit card.”

6. Stop buying on credit.

In the excitement of buying a house, some people rush out to charge new appliances or furniture before closing. But even if you’re in escrow, having a debt utilization ratio above 30 percent right before closing could disqualify your loan. “Unless you’re gonna pay cash, have patience for your new furniture until after your loan is closed,” says Warren. Also hold off on getting a car loan, as car financing tends to be more lenient than mortgage criteria.

7. Don’t shuffle money around.

When you apply for a mortgage, you’ll need to provide several months of bank statements for your checking and savings accounts. “If you suddenly shut an account or have a large transfer from one account to another, then you’re going to have to paper-trail that whole account too,” says Warren. “Leave your money and your accounts the same for at least three months. It won’t disqualify you but will make a paperwork hassle.”

Reposted from:  http://www.creditsesame.com/blog/how-to-prepare-credit-buy-a-home/