Tax Credit Extended!

UPDATE 1-Senate votes to extend US home tax credit deadline

WASHINGTON June 16 (Reuters) - The U.S. Senate voted on Wednesday to give homebuyers another three months to settle on their contracts and take advantage of a popular tax credit that sparked a rush of activity in the housing market.

The Senate, with a vote of 60-37, accepted an amendment by Democratic Leader Harry Reid that extends the closing deadline to Sept. 30 for buyers who met the April 30 deadline to have a signed contract.

The current deadline requires buyers to close by June 30 to get the $8,000 tax credit for first-time homebuyers. Existing homeowners buying a new primary residence are eligible for a $6,500 credit.

Reid offered the measure as an amendment to a bill that would extend some popular business tax breaks and extend unemployment insurance benefits for jobless workers.

The proposal would not have a significant impact on future home sales as the extension would be only for home buyers who already had a contract in hand by April 30.

The popularity of the tax credit has caused some anxiety because settlement offices are inundated with buyers trying to close on transactions by the end of this month to get the tax break. (Reporting by Donna Smith; Editing by John O'Callaghan)

How do short sales affect your credit?

How do delinquencies impair credit scores?

CHICAGO – April 23, 2010 – Fair Isaac, which developed FICO scores, used a comparison between two people to explain how mortgage delinquencies affect credit scores.

Fair Isaac derived these numbers from a theoretical calculation based on hypothetical borrowers – one with an initial score of 680 and one with an initial score of 780. FICO scores range from 300 to 850.

The hypothetical person behind the 680 score had six credit accounts, while the person with the 780 score had 10. The consumer with the 780 score had no missed payments other than the mortgage; the 680 example had two late payments before they failed to pay the mortgage.

After a mortgage payment problem, the two scores would look like this:

• After a 30-day delinquency, the 680 score drops to somewhere between 620 and 640; the 780 score declines to 670 to 690.
• After a 90-day delinquency, the 680 score falls somewhere between 595 and 610; the 780 score goes to 645 to 665.
• After a foreclosure, short sale or deed-in-lieu, the 680 goes somewhere between 575 and 595 and 780 drops to 620 to 640.
• After a bankruptcy, the 680 drops somewhere between 530 and 550; the 780 declines to 540 to 560.

Source: CNN, Les Christie (04/22/2010)

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Fannie Mae Sweetens offer to avoid foreclosure

WASHINGTON - April 26, 2010 - Struggling borrowers who give up their homes through a "deed in lieu of foreclosure" or a short sale will be able to obtain a new Fannie Mae loan in two years. Currently, these owners must wait at least four years.

The new policy, which takes effect in July, is designed to make foreclosure alternatives more attractive. The policy applies only to Fannie Mae's willingness to approve a mortgage, however. Homeowners' credit scores will still take a hit following a short sale or deed in lieu of foreclosure.

To qualify for a mortgage after the two year wait, Fannie Mae says borrowers must make a 20 percent downpayment; but those who lost a job or have other extenuating circumstances will be able to make a 10 percent downpayment.

Freddie Mac - which, with Fannie Mae, insures over half the mortgages in the U.S. - currently makes homeowners wait four years after a short sale or deed in lieu of foreclosure before it will back a new mortgage. Owners who go through a foreclosure wait five years. For both Fannie Mae and Freddie Mac, the waits can be shorter in some cases if borrowers show extenuating circumstances.

Differentiating Short Sales vs Foreclosure

Short Sale Vs. Foreclosure

Review the following comparisons between short sales and foreclosures for a better understanding of why short sales are a better option for most homeowners. While a short sale is a complicated process, the outcomes of your patience and diligence are worth it in the end!  And when using an experienced real estate agent, it can drastically simplify the process. 

What are the implications to my credit score?
Following a successful short sale your mortgage will be reported on your credit score as either paid in full or negotiated, lowering your score as little as 50 points and potentially only affecting you for 12 to 18 months. After a foreclosure, however, your credit score can lower as much as 300 and usually at a minimum of 250 points and affects your score for over three years, and it will be reported on your credit history as a foreclosure judgement.

What are the implications to my credit history?
A short sale is usually reported as paid in full and is not reported on your credit history. A foreclosure will remain on your credit history for 10 years or more and will remain as public record.

Who decides if my home should undergo a foreclosure or a short sale?
In both short sales and foreclosure, the decision is made by your mortgage lender. The most important aspects to getting a lender to agree to a short sale, and saving you the more damaging credit implications of a foreclosure, is to prove that you have no other way to pay the mortgage and that the amount received from a short sale is the fair price of the market. Lenders who believe they can receive more by taking possession of the home in a foreclosure and selling it themselves will not agree to a short sale.

How long will I have to wait to buy another home?
After a foreclosure, you may end up waiting another 24 to 72 months before a mortgage lender will offer you an interest rate that is acceptable. Most mortgage lenders report that for homeowners who have undergone a previous short sale they may get a reasonable interest rate in less than two years. Fannie Mae guidelines allow a short seller to apply for a new loan immediately if payments were kept current and had no 60-day late payments on their record.

What will be the effects on my future loans?
For most mortgage lenders you will not be asked to declare or be questioned regarding a short sale on any standard loan application (1003). In regards to foreclosure, you will be asked on any future standard loan application (1003) if you have had a property foreclosed in the last seven years, therefore affecting your rate. Fannie Mae backed mortgages will be available to you following a short sale after two years. Fannie Mae backed mortgages will not be available to you for at least five years if you have lost your home due to a foreclosure.

Does it affect my employment opportunites?
A short sale does not appear on a credit report and will not challenge your current employment status. In comparison, if you have a foreclosure on your credit report, some employers consider it a reason for termination or reassignment since many run credit checks on employees for certain positions. A foreclosure can be extremely harmful to your chance of being selected for a new job if your credit report is taken into consideration.