The National Association of REALTORS released some updated infomation on the affects of short sale, foreclosure, bankruptcy and deed-in-lieu of foreclosure on FICO scores and the ability to purchase another home.

Short Sale  (Deed-inlieu of Foreclosure Guidelines are similar) – According to the report the affect on your FICO score from short sale depends on how the sale is reported to the credit bureau.  If reported as “not paid as agreed” the score could go down 100+ points.  Late payments will also affect the FICO score and are reported for 7 years, with thier impact lessening over time.   Buyers looking to purchase after a short sale will have to wait to purchase another home.  If purchasing using FHA financing the wait is 3 years (possibly less if not in default at time of short sale).  For a Fannie Mae insured loan buyers need only wait 2 years if putting 20%+ down, 4 years if putting between 10%-20% down, and 7 years if putting less than 10% down.  If getting a Freddie Mac insured loan the wait is 4 years, 2 years if extenuating circumstance are documented.

Foreclosure – A foreclosure stays on your credit report for 7 years, with the impact lessening over time.  A foreclosure could lower your FICO score 100+ points.  Buyers looking to purchase after a foreclosure will again have to wait.  If purchasing using FHA financing the wait is 3 years.    If getting a Fannie Mae insured loan the wait is 5 years from the foreclosure sale date, 3 years if there are extenuating circumstances.  Additional underwriting requirements may be required.  The wait for Freddie Mac insured loans is similar with a 5 year wait, 3 years for exentuating circumstances.

Bankruptcy – Bankruptcies stay on your credit report for 7 years (10 if there was a full discharge of debt).  Bankruptcies generally have a greater negative affect on the FICO score in comparison to the above mentioned issue.  Buyers looking to repurchase after a bankruptcy using an FHA loan will have to wait 2 years from discharge date with a chapter 7 BK and 1 year with a chapter 13 BK.  If getting a Fannie Mae or Freddie Mac insured loan there is a 4 year wait for chapter 7 or 11, and 2 year wait if chapter 13.   Some allowance are made for exentuating circumstances. 

Extenuating Circumstances – include serious illness or death of a wage earner, but do not include an inability to sell a house due to job transfer or relocation. 

For a full copy of this report please feel free to contact me.