How Foreclosure and Short Sales Affect Your Credit Report History

Next to filing for bankruptcy protection; foreclosure is the other thing that candestroy the chances of an individualto qualify for a home loan. This is of course, on top of the damage that it causes your credit report and financial reputation.

With more than 4 million homes lost in the past six years due to foreclosure, mortgage-lenders have become more stringent and careful in terms of their reviewing processes. Mortgage-lending guidelines followed by many banks hinder them from offering loans to ones who have recently dealt with foreclosures or a short sale in their credit history.Still, some of the homeowners who were foreclosed earlier and are still suffering from bad credit reports are now looking to buy and getting loans and they have been able to do so with banks offering higher interest rates. While there are several factors, large foreclosures and short sales are what banks look out for mortgage applications. Having a real-estate-related mark on yourcredit report is big factor deterring lenders, banks and creditors

Foreclosures affecting credit scores

Generally, borrowers dealing withforeclosure in their credit history have to wait for two to seven years before they can get a loan application accepted. If a buyer with a foreclosure past seeks a government-backed mortgage then the waiting period can differ before they can actually qualify.Federal Housing Administration (FHA) for instance, roughly insures 30 percent of new loans. According to its guidelines, former homeowners have to wait for three years from the date of their foreclosure before qualifying for backing by the agency.

One the other hand, the U.S. Department of Agriculture's housing program,which requires three years and loan penalty for VA loan’s is of two years. In some cases, waiting periods for a foreclosure can be reduced. Some financial institutes lend relief in some circumstances, which are beyond homeowners’ control and led to sudden reduction in income or increase in financial obligations, job layoff, medical bills or divorce.

Short sales in your credit report

The impact ofa short sale in your credit report history is less severe, but in only some cases. According to FHA people with unpaid mortgage have to wait for three years before they can qualify for a home loan. The relief is provided in case of long term job loss.

Similar to credit report blemishes, foreclosures and short sales remain active on your credit history for seven years.