Short Sale Blog

According to a new report published yesterday in the Wall Street Journal, lenders are easing up and offering loans to people with a less than perfect credit record - including those who have defaulted on their mortgages.

A study quoted in the article indicates that 64,500 borrowers who had defaulted on their mortgages received a consumer loan between February 2009 and August 2010. The majority of those were credit cards, but 40% of those borrowers received a personal loan or car loan or line of credit.

In evaluating clients for loans, banks are aware that many homeowners who are actually responsible found themselves in financial trouble due to the housing bubble and bust. So, although borrowers who have defaulted on multiple loans will still experience difficulties in negotiating any new loan, borrowers who have defaulted on their mortgages but are current on all other loans are actually considered to be low-risk clients.

While a blemished credit history may not prevent consumers from negotiating a loan, they still may end up paying more in interests than borrowers with a perfect credit report. Credit card interest rates could be 5 to 10% higher for these borrowers, and interest on a car loan could be three or more times higher than for low-risk borrowers.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/

Fair Isaac, the creator of the Fico credit rating system, has traditionally been reluctant to release their formula for calculating consumers’ credit scores. However, as reported last week by the Wall Street Journal, in response to various rumors and incorrect information about how credit scores are calculated, FICO’s director of mortgage markets Joanne Gaskin has compiled and released information on how credit scores are calculated.

A credit score of 750 or more is considered to be very good. The scale ranges from a low of 300 up to 850. A good credit score is important to qualify for a home loan or other loan in the first place. But your credit score also makes a difference in the interest rate you receive for your loan. The Wall Street Journal article gives these two examples, showing how a borrower with a higher credit score may save thousands of dollars in interest:

• A person with a 620 score would pay almost 12% interest on a four-year $25,000 car loan, compared with less than 5% for someone with a 780 score—a difference of almost $4,000 over the life of the loan.
• On a 30-year fixed-rate $250,000 mortgage, a person with a 620 score might qualify for a 6% rate, but probably wouldn't be able to get mortgage insurance, which is required if your down payment less than 20%. A person with excellent credit might land a rate less than 5% and pay about $3,000 a year less.

The hit to your credit score for specific actions, such as late mortgage payments or a short sale, depends upon your original credit score: the better your score, the harder the hit. For those who start with a higher credit score, it also will take longer to regain that high rating. Here are some examples:

If your credit score has taken a hit, the best way to rebuild it is by using it. If you simply try to avoid borrowing, you essentially “freeze” your credit score at that damaged level. Borrowing, and paying back your loans by making payments on time, is the best way to rebuild that credit score.

If you are a homeowner, and would like to learn more about short selling your home, please go to: http://seattleshortsales.com/homeowners/

If you are a real estate agent, and would like to learn about our no-fee short sale service, please go to: http://seattleshortsales.com/agents/