Credit questions after a short sale

[PenelopeJune]

We sold our house yesterday! Wooo! We scraped out of a foreclosure by the skin of our teeth. It was a short sale, of course, and we hadn't made a mortgage payment since May 2009.

Now I want to get everything back on track and clean up the mess our credit surely is. (I don't know the credit number, I wanted to give it a month or so after the sale went through to check it.)

We have no credit card debt. We are still making payments on our car, which should be paid off by December. Other than that, we have no debt. We had perfect credit prior to the house situation, which went down after DH lost a ton of his hours and we were never able to catch back up. Other than that "minor" screw up, ( ) we've never had a debt problem.

What can we do to get our credit in order? How long will it take to clear our credit from this? If we wanted to, say, buy a house again one day, how will this affect us? (I'm scared to buy a house again, but renting sucks, too. It will be at LEAST a few years before I'm even ready to think about it again.)

[velochic]

I was just watching a show (Clark Howard, I think?) last week that went through how much your credit is dinged for different things and how long the recovery takes. I was surprised that a short sale dinged as much as foreclosure according to the report. Up to 200 points, IIRC. And the higher your original score is, the more you get dinged.

So for someone who had an 820, they would probably go down to 620. But someone with a 750 may get dinged 120 and go only down to 630. I'm not sure the rhyme or reason or how they are figuring this. I assume that they are trying to bring all the scores down to a minimum range.

Then the segment said that it takes about 7 years to bring the credit rating back up to where it was before. That doesn't necessary mean you have to have your perfect credit back to do what you want to do, but for optimal interest rates, etc. they were saying it does take several years.

So, to get your credit back in order, I would just use it sparingly and sensibly. Make sure you don't even have a 30-day past due. Make sure there aren't a lot of inquiries on your credit report. Have a good debt to available credit ratio and then just wait. It will take a LONG time to recover completely. GL

[velochic]

Oh, and one other thing. The difference between what your house was sold for and what you owed on the mortgage (what is being written off by the bank) may be considered income for you. That means you may owe income taxes on it. The Mortgage relief act was good only through 2009 and I don't know if they renewed that to include 2010. I would be surprised if they didn't, but make sure to be positive.

[PenelopeJune]

Yeah, I'm kind of afraid of that, re: taxes on the forgiven portion. That will REALLY hurt if we have to pay taxes on an extra $30,000.

What is a good debt to avail. credit ratio? I just did the math, and our car will be paid off in June. Will that hurt our credit, having that loan closed? (Not that I care, I'm STOKED to get it paid off!)

We have three credit cards, with about $10,000 available credit, and zero credit card debt. Do we want to use these occassionally to start re-building credit, or leave them alone? And if we do use them, do we want to pay them off immediately that month, or make a few minimum payments? (I've heard conflicting advice on that.) Don't worry, we're not the type to rack up debt just because, so I'm not worried we'd get carried away with charging on the card.

[velochic]

I once heard that shouldn't use up more than 50% of what you have available, so I guess 2 to 1 credit to debt. I don't remember where I read that or when in was (could be outdated). The power of google would probably give you a better answer than I can for exactly what is a good ratio. Sorry.

[MyLilPwny]

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation is good through 2012: http://www.irs.gov/individuals/artic...179414,00.html It better be because we bought our house for $565,000 with an interest only loan and its listed at $349,000 right now (I'm glad we did zero down payment) so that would be a huge chunk to pay taxes on if we had to. Our house will be short sold too. Our last payment was in April 2009. The foreclosure public auction was supposed to happen earlier this month, but our realtor is in good negotiations with the lender to delay it until the short sale is in place. We don't have to pay our realtor anything either. The realtor is working for us for free because the realtor will get paid by the bank. Anyway, so our realtor says that he can get us a loan to buy another house in about a year if we really wanted to and he knows people whose job it is to repair your credit (there are actual companies who do that) so he would hook us up with them.

[Living Slowly]

Originally Posted by ThereseReich

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation is good through 2012: http://www.irs.gov/individuals/artic...179414,00.html It better be because we bought our house for $565,000 with an interest only loan and its listed at $349,000 right now (I'm glad we did zero down payment) so that would be a huge chunk to pay taxes on if we had to. Our house will be short sold too. Our last payment was in April 2009. The foreclosure public auction was supposed to happen earlier this month, but our realtor is in good negotiations with the lender to delay it until the short sale is in place. We don't have to pay our realtor anything either. The realtor is working for us for free because the realtor will get paid by the bank. Anyway, so our realtor says that he can get us a loan to buy another house in about a year if we really wanted to and he knows people whose job it is to repair your credit (there are actual companies who do that) so he would hook us up with them.

This is so good to know. Our ARM becomes adjustable next month and we will probably be looking at short sale or foreclosure too because we are $100K upside down now. This whole thing sucks so bad.

[oneotamama]

We sold our house in 2005 and it was a quick (short) sale. Our realtor acted like she was doing us a huge favor by doing it that way instead of a foreclosure. Then came tax time. We got a 1099 for the difference in what we owed versus what it sold for. Then later when we were applying for a loan it showed up as a foreclosure on our credit history anyway. I guess basically it kept our names out of the newspaper, but no advantage other than that!