Jeff Hansen & Arvin Paredes


Downtown San Jose Condo & Townhouse Living

What Are The Consequences Of A Short Sale And Foreclosure?

During a down market, homeowners are faced with decisions such as doing a shortsale, letting their property go, or continuing to pay their headache of a mortgage. In his article, “Life After Short Sales and Foreclosures,” Lender Dave Setti of Turnkey Mortgage explains how going through a short sale or foreclosure affects your credit as well as the time you must wait to be a homeowner once again…

Life After Short Sales and Foreclosures

Posted by Dave

Well, that was then and this is now. Unfortunately, because of the real estate market crash that began in late 2006, foreclosures and their not so distant cousin, short sales have become all too familiar dialogue in our country. Just for reference, a quick definition of each:

Foreclosure: Due to a breach in the payment agreement, as dictated by the deed of trust, a notice of default is issued and the bank takes the house from the owners.

Short Sale: This is a sale of a property to a traditional buyer, where the seller, must ask their lender(s) if they will accept less than what is owed to them because of lack of equity.

Now that we have the terminology out of the way, let’s discuss what might happen after you have a foreclosure or short sale on your record.

1. Your credit is going to take a hit – although I am not a credit expert, I have heard estimates that both a short sales and foreclosure can (and in most cases will) reduce your credit rating by as much as 100 points.

2. Lenders are not going to be so willing to extend you credit anytime soon for your next home purchase.

So, your credit is going to go down and lenders are not going to want to offer credit for some time. But will this last forever? I can emphatically say, NO! The more distance you put between yourself and your short sale or foreclosure will reduce its impact on your credit score and your ability to borrow. Lenders realize that millions of former and current homeowners have faced and will face either a foreclosure or short sale. Lenders need to pave the way to eventually lend to them again. Being that this is a fluid market, know that the timeline for being able to borrow again change often. Here is a matrix of how soon we can offer a loan in the current environment:





3 years – 3.5% down

3 years – 3.5% down


7 years – 5% down

7 years – 5% down


4 years – 10% down

3 years – 20% down


2 years – 20% down


The market will continue to shift to accommodate this growing numbers of potential homebuyers.


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