Profile picture for bean458

Refinance with a short sale on your credit

My husband and I have had perfect credit until we decided to buy an "investment" property for $380K which depreciated to $170K and we decided to do a short sale. The good news for me is that only my husband was on the title of that property, so my credit is still perfect (780+). 

But here's where things get complicated:
   We moved out of town and we are renting what used to be our primary residence (for which we have a 5/1 ARM loan and have never been late on any payments). The first 5 years of this loan are almost up!! (In a few months) and so we want to refinance in order to continue to afford it (5 years ago we thought we'd sell the place within 5 years, but with the prices dropping we can't afford to do this, but we CAN afford to keep paying what we're paying now).

The problem now is that my husband's credit is affected by the short sale and I'm wondering if this will make it impossible for us to refinance???  We decided to do the short sale so we could save everything else. Now I'm afraid that because of the short sale we'll end up loosing both properties =/

I assume there are many like me out there!!!  Any thoughts??? By the way, both properties are in Southern California.

Thanks!
  • November 20 2009 - US
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Answers (2)

Profile picture for Clearpoint

Since you are renting this property you will have to refinance it as an investment property under your own name if you can qualify.  Realize that the loan to value numbers are much lower since your have converted this property to a rental.

Your other option is to contact the lender/servicer and see what they can do about converting your ARM to a fixed payment but the fact you have the property rented makes it more difficult especially since you already sold one investment property short.

  • November 20 2009
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The short sale impact will depend on when it completed and what was the payment history on the loan at the time of the short sale.  It also depends on if default was ever filed.

It is common misconception that short sale is treated same as foreclosure when applying for new loan.   This is not the case.

If you were able to complete your short sale and avoid notice of default, you would potentially be eligible for conventional financing.   You cannot have any 60 day lates within the last 12 months.

More details will help in letting your know options.  The other good news is your 5/1 ARM is quite likely to adjust to a lower payment, so that potentiall can buy you another year or 2 at affordable payment if you will need that year or 2 to become eligible again for conventional financing.

  • November 20 2009
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