Mortgage Approval 2.5 years after short sale

[aharmon_499]

I am in the process of planning a job relocation to the Atlanta area and I am hoping I can get some opinions from some experienced mortgage professionals or others with similar circumstances on the likelihood we would be approved for a new mortgage given the following circumstances:

- Current mid-FICO score around 675
- Sold our home in a short sale in July '10 due to challenges in maintaining the payments given job circumstances at the time, overextension of credit card debt, and ultimately a job relocation out of state. 
- During the year leading up to the finalization of the short sale we had several late mortgage payments and credit card payments
- In order to close the short sale we had to sign a $10k note with Fannie Mae which was ultimately transferred to Dyck O'Neal.  We did not begin making payments on this note until March 2012 as we had requested proof of transfer from them multiple times and they did not do so until March 2012, at which time we immediately paid all past due payments and have been current on the note payments since.  Unfortunately they are currently reporting us past due 120 days each month up to 3/12 (current since).  I realize we should have paid them earlier and I probably did not handle this situation properly but what is done is done and I'm afraid it cannot be reversed.
- We have rented a home for almost 4 years now with a $2,500/mo payment and could certainly get a positive credit reference from our landlord
- Our credit card debt has been reduced to less than $10k and we have been current with all payments for the last couple years, as well as our car loan

We are looking at a home purchase around $500k with 20% down payment.  Do we have any hope of obtaining an approval for such a purchase at this time given these circumstances above?  We won't be buying until early spring either which will likely mean our scores could increase slightly from current levels and revolving debt will be near 0.  I also have very solid income to cover DTI ratios involved.

Thanks!

[StartingOver10]

I think you are going to have a very tough time getting an approval under 3 yrs with your file, its possible, but tough.

You can get a conventional loan after two years from a short sale with min 20% down, but your late pays on the deficiency balance subsequent to the short sale will complicate your situation. Have you thought about just negotiating with the Dyck O'Neal for a settlement of the remaining balance? You might be able to get them to vacate the entire tradeline and settle for fifty percent or some other percentage. The more important part is either getting the tradeline removed from your report or getting rid of the late pays.

If you are able to handle that satisfactorily, then your chances improve tremendously. Keep excellent records. You will need to show the new lender the short sale documentation (sale and release) for the new loan.

One other item, what is your utilization on your current cr cards, individually and in the aggregate? You want to be in the best possible shape with your credit file when you make application after you have had a major derog like a short sale. That way you can show that the derog is the exception and not the rule. The best thing about FICO is it has no memory. If you make application with your cards reporting zero balance except for one less than 9% usage of the individual credit limit, you will have optimized your score for the mortgage app process.

[aharmon_499]

Thanks for the detailed response. I figured the deficiency balance is going to be my largest obstacle. I have sent them a request to remove the late pays given the circumstances but I am not optimistic they will comply. If that is the case I will attempt to negotiate a settlement contingent on them removing the trade line. Currently they are not reporting to TU but I assume this doesn't really help me. Anyone had any success renegotiating with Dyck ONeal in the past?

Our CC utilization on open trade lines is under 30% both individually and in the aggregate and can easily be brought under 10%. I do have some other cards which are closed but still carry balances which we are getting very close to 0 on too. Will these need to be at 0 in order to improve the chances of approval?  I am just trying to balance cash towards a 20% down payment vs. what is necessary to pay off in my credit lines. 

Thanks again!

[StartingOver10]

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@aharmon_499 wrote:

Thanks for the detailed response. I figured the deficiency balance is going to be my largest obstacle. I have sent them a request to remove the late pays given the circumstances but I am not optimistic they will comply. If that is the case I will attempt to negotiate a settlement contingent on them removing the trade line. Currently they are not reporting to TU but I assume this doesn't really help me. Anyone had any success renegotiating with Dyck ONeal in the past?

Our CC utilization on open trade lines is under 30% both individually and in the aggregate and can easily be brought under 10%. I do have some other cards which are closed but still carry balances which we are getting very close to 0 on too. Will these need to be at 0 in order to improve the chances of approval?  I am just trying to balance cash towards a 20% down payment vs. what is necessary to pay off in my credit lines. 

Thanks again!

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What happens when you have balances on a revolving account and the account is closed is that it impacts your entire utilization. For example if you have 3 cards with $1000 per card as your credit line and you owe $300/card plus you have two closed lines with $300 balances each your utilization is actually 50 percent. The balances on a closed credit line def impact your score. You can get a real boost from having at least one of your cards report zero balance. It is better to have all but one report zero for a mortgage, but you do have to do as you said: keep in mind the balance between score and down payment funds. In your instance it might actually be better to pay off the closed lines before you apply so it will look better in manual underwriting.

[aharmon_499]

Thanks.  I think I understand that what you are saying is that it is not merely my utilization ratio on open credit lines which matters in terms of mortgage approval but rather the total debt (including open balances on closed lines) / total available credit.  This would in fact hurt me as I currently have approx 5k balance outstanding on open lines with a total avail credit of 18k (30% utilization) but also have approx $20k balances remaining on closed lines (well below where they started and where the original available credit lines were though). 

Would I benefit from contacting these creditors to see whether they are willing to reopen the lines or would this negatively impact my credit scores?  I do also have several open and closed lines which currently have a 0 balance (basically I went from approx 100k in revolving debt a few years ago to 20k now).  After all is said and done I still think this darn Dyck O'Neal note is going to be my hardest obstacle to overcome.

[StartingOver10]

Exactly, you have the picture now.

If you are looking for a big score jump, you will find it in reducing your utilization. But, your file will be manually underwritten anyway and the deficiency from the short sale is the elephant in the room. I don't know if you can reopen the lines, they most likely will have you reapply.

[clipperskipper]

The new HARP rules are going to allow for financing following short sales, foreclosure, and bakruptcy in as little as three years. In the mean time, keep picking away at

the plastic, this is huge, and comprises 30% of your credit score. In 18 months, I took a 719 score, and brought it up to 805, plastic. HARP 3.0 is just around the corner (so they tell us), qualifying will become yet easier for many. 

[K_J]

I had a HSA loan through fannie Mae that Dyck O'neal were collecting, I was in a similar situation as you after a short sale and was told the 10k would be paid through short sale, I didnt 1K was unpaid till I got a letter 2 years after from Dyck O'neal. apparently this CA is a pain to deal with, The account is paid and they wouldnt GW, if you ever have any luck with them removing let me know.