So what are the consequences of letting my home be foreclosed on or doing a short sale? Here’s an example, if a prospective homebuyer hopes to obtain a Fannie Mae mortgage for a future primary residence home purchase, a past foreclosure that occurred sometime in the prior 5 years will render the borrower ineligible for a loan from Fannie Mae. This cannot be said of a prospective buyer who sold his property through a short sale, it is that he will qualify for a Fannie Mae backed loan for a primary residence after only 2 years.

Non-primary homeowners who have had a prior foreclosure have an even longer waiting period to satisfy before being eligible to purchase another home. The waiting time is extended from five to seven years to qualify. If you have successfully negotiated a short sale and would like to purchase another non-primary residence, you will only have to wait the same 2 years as you would have for a primary residence.

If you want to get a loan through a mortgage company and you have a prior foreclosure on your record, you will be asked to answer “yes” to question C in Section VIII of the standard application 1003 which asks if your property has been foreclosed on . in or given title or a deed-in-lieu of foreclosure within the last 7 years. Although you can still apply for a loan with a mortgage company, your interest rates will increase dramatically. If you negotiated a successful short sale in lieu of foreclosure, a short sale disclosure is not required, so your interest rate should remain relatively reasonable.

A big “hit” that borrowers worry about is the effect on their credit score as a result of a foreclosure or short sale. With a foreclosure you will experience a huge shock, expect to see your score drop from 250 to over 300 points. The negative impact on your credit score will generally remain on your credit history and weaken your score for more than 3 years. A successfully negotiated short sale, on the other hand, will list missed mortgage payments. It will be reported as “paid off” or “negotiated” which will reduce your points by as little as fifty points, not the three hundred that a foreclosure would do, assuming you were current on the rest of your payments during your brief sale period. This drop can affect your credit score for as little as 12 to 18 months.

How do your credit score and credit history differ? Well, your score fluctuates, your history will remain intact on your report, for any creditor to monitor, for a specified number of years, even if your score has improved. A foreclosure remains a public record and a fixture on your credit report for at least ten years. A short sale does not register on your credit history, only your missed mortgage payments. There is no specific reporting item for “short sale” as the loan is typically reported as “paid in full, paid off.”

You may not think that something like a foreclosure could affect your security clearance, but it can and does. Surprisingly, a foreclosure is the most challenging issue against a security problem, aside from a misdemeanor or felony conviction. If a client has a foreclosure and is a police officer, military, CIA, security, or anyone else who requires a security clearance, they will almost inevitably be revoked and the position terminated. If you successfully negotiate a short sale, that fact, by itself, does not defy most security clearances.

Have you thought about how a foreclosure or short sale could affect your current job? Employers may check your credit regularly, assuming your position involves a sensitive topic. A foreclosure is often considered grounds for immediate reassignment or termination. A short sale, on the other hand, is not reported on your credit report and therefore does not pose an employment challenge.

If you decide to change jobs, or have no choice but to change jobs, you should consider how a foreclosure or short sale could affect your future employment. A foreclosure exposes you to early challenges as many employers use a credit check for many new applicants. Generally, a foreclosure that negatively impacted your credit will be challenging for employment. Again, a short sale is not reported on your credit report and therefore will not become a challenge for employment.

A big concern for most homeowners facing a foreclosure or short sale is the deficiency judgment. With 100% foreclosures (unless you live in one of the non-deficiency states), the bank can go after the homeowner for the deficiency. Some successful short sales actually work with the lender and get them to agree to waive the right to sue the owner for the deficiency. The amount of deficiency must also be considered. With a foreclosure, you must go through the REO process if your property does not sell at auction. An REO typically results in lower sales prices and a longer period of time the property could stay on the market, especially in declining sales markets. Unfortunately, all that slowdown and lower sales price could mean a higher deficiency judgment for the owner. A properly handled short sale is more likely to fetch a price more in line with market value and will generally be better than an REO sale, and should result in a smaller deficiency, meaning banks will generally be more willing to negotiate with you.