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kellamtom
633 Posts |
 Posted - 05/12/2008 : 8:29:04 PM
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| I have a client that owns a home in ca and recently relocated to texas with employer, still making the mortg payments, relo co negotiating a short sale w/chase on ca property and i need to find out if borrower would be disqualified from purchasing a new home in tx after sale of his home. What negative impact does a short sale have on the credit? Will the lender issue a a 1099 for the deficiency? Would borrower have to wait the 2-3year period just as they would, if lost property due to foreclosure? Would the remaining balance due to chase have to paid in full before a purchasing another property? Borrower would most likely apply for an FHA loan on another purchase. |
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Steven Bote
13 Posts |
Posted - 05/12/2008 : 9:23:22 PM
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Unless the borrower is currently behind by at least one or two months of mortgage payments, and can establish hardship or a lack of ability to make his payment, I don't even think his existing lender in CA will sign off on the short sale.
Typically, the applicant of a short sale has zero to little liquid assets either in the bank or in the form of retirement accounts, which further supports the hardship, whereas if you are doing an FHA loan in TX, I am assuming that you have at least 3-6 months for reserves of PITI, not including 3% of the contracted purchase price for down payment and 1.5% of the base loan amount for his UFMIP.
Does the borrower qualify full doc with offer letter and previous years W-2s DTI-wise without the sale of his existing property? Remember that unless his credit is outstanding, his backend ratio is capped at 45% including the property taxes, HOI and fully amortized mortgage payments for both mortgages.
If not, I would certainly advise him that unless his company is offering him relocation cash up front to seriously reconsider jumping ahead, without a pre-approved executed contract on his property in CA.
Otherwise, you will end up wasting your time on a file that is doomed from the start.
Good luck. |
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slants
4274 Posts |
Posted - 05/12/2008 : 11:09:55 PM
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quote:
Originally posted by kellamtom
I have a client that owns a home in ca and recently relocated to texas with employer, still making the mortg payments, relo co negotiating a short sale w/chase on ca property and i need to find out if borrower would be disqualified from purchasing a new home in tx after sale of his home. What negative impact does a short sale have on the credit?
Even when the accounts are current, lenders are approving shortsales to forestall inevitable foreclosures when values are upside down. Much debate about the effect of shortsale vs. foreclosure on one's credit score. I believe there is not a dramatic difference IF the homeowner has 120 & 180 day lates and/or a NOD at the time of a shortsale, but if the shortsale is accomplished without late payments on the account, then it will be reported as "settled for less than full balance" and may not be as seriously detrimental to credit score. quote:
Will the lender issue a 1099 for the deficiency?
If it was his primary residence for > 2 years and he had not cashed out equity, then the Mortgage Forgiveness Debt Relief Act of 2007 will forgive the 1099. If he had cashed out for reasons other than home improvement, then the cash out will be subject to income tax.quote:
Would borrower have to wait the 2-3year period just as they would, if lost property due to foreclosure? Would the remaining balance due to chase have to paid in full before a purchasing another property?
Not if he can offset the 1099 through the foregiveness act, but instead of issuing a 1099, some lenders will require the borrower sign an unsecured note for the deficiency amount as a condition of approving the shortsale in which case the terms of the note will have to be maintained to qualify for future loans. quote:
Borrower would most likely apply for an FHA loan on another purchase.
I believe FHA requires 2 years after a shortsale. Maybe the FHA experts will confirm. |
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EMScommercial
5138 Posts |
Posted - 05/13/2008 : 08:57:43 AM
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| where's pat pulate to answer the fha question? |
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slants
4274 Posts |
Posted - 05/13/2008 : 09:37:55 AM
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Hopefully their current loan is not FHA:
"A lender told me about a brand new surprise for owners. A couple had given their FHA deed-in-lieu-of-foreclosure to the bank and a year later wanted to get a new home loan. However, the lender had filed a CAIVERS report on the couple months after the fact… which meant they could not get an FHA or VA loan for a period of 3 years!" |
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slants
4274 Posts |
Posted - 05/13/2008 : 09:51:40 AM
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If FHA looks at a shortsale as a foreclosure (which I believe they do), then it'll be 3 years before borrower will qualify for FHA:
From the 4155:
Previous Mortgage Foreclosure. A borrower whose previous principal
residence or other real property was foreclosed or has given a deed-inlieu
of foreclosure within the previous three years is generally not eligible
for a new FHA-insured mortgage. However, if the foreclosure was the
result of documented extenuating circumstances that were beyond the
control of the borrower and the borrower has re-established good credit
since the foreclosure, the lender may grant an exception to the three-year
requirement. Extenuating circumstances include serious illness or death
of a wage earner, but do not include the inability to sell the house
because of a job transfer or relocation to another area. |
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slants
4274 Posts |
Posted - 05/13/2008 : 10:17:24 AM
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| There was a post a few days ago from a LO whose clients had a shortsale not reported on the credit report as a shortsale, but because it was an FHA loan, it was reported to CAIVERS so they had to wait 3 years to get another FHA loan. |
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