Short Sales: Dispelling the Myths
Let us help you separate myth from fact
Myth #1: A short sale will ruin my credit score.
Fact: While only the credit reporting agencies that calculate your credit score will know for sure, it’s possible that a short sale might be better for your score than a foreclosure. Even if it isn’t, a short sale gives you time to find a more affordable place to live and exit gracefully from your obligation.
Myth #2: I will be responsible for the entire amount owed on the mortgage.
Fact: Not necessarily. Under the short sale option offered by Freddie Mac, homeowners who complete a short sale in good faith and are in compliance with all laws and Freddie Mac policies will not be pursued by Freddie Mac for the entire amount owed under the mortgage. If you have the financial ability, you may be asked to make a one-time payment or sign a new promissory note for a portion of the unpaid balance after the short sale closes.
Myth #3: Short sales can take several months to complete.
Fact: With our enhanced short sale, the time lines are significantly shorter. Servicers have 30 days to make and communicate a decision to you once they receive your completed application. If necessary, they can get an additional 30 days to negotiate with third parties but you should get a final decision by day 60. Once approved, you can expect to close on your short sale within 45 days – working with an experienced real estate agent can help expedite the process.
Myth #4: I can’t get a short sale on an investment property or second home.
Fact: Investment properties and second homes are eligible for our short sale option if borrowers meet the eligibility requirements.
Myth #5: A short sale is not an option for me because I’m current on my mortgage payments.
Fact: Even if you are current on your mortgage payments, you may be eligible for a short sale. In addition to meeting the general eligibility requirements, the property must also be your primary residence and your debt to income ratio must be greater than 55 percent.
Myth #6: I won’t qualify because my servicer has strict guidelines on short sales.
Fact: Every borrower is eligible to be considered for the short sale option provided by Freddie Mac providing they meet the eligibility requirements. We increased the authority of our servicers to approve short sales for qualifying financial hardships for homeowners who are past due or current on their mortgage payments. In addition, servicers now have the independent authority to approve short sales without a separate and potentially time-consuming review by the mortgage insurance company.
Myth #7: A short sale will affect my eligibility for a new mortgage.
Fact: If your financial difficulties were the result of income loss, medical emergencies or other extenuating circumstances beyond your control, you may be eligible for a new Freddie Mac mortgage once you’ve established acceptable credit for at least 24 months after completing the short sale. However borrowers who require a short sale as the result of personal financial mismanagement must re-establish acceptable credit for at least 48 months to become eligible for a mortgage backed by Freddie Mac. You should start speaking to a lender about a new mortgage two years after your short sale closed. We also encourage you to look at CreditSmart®, our financial education program, to learn more about how to rebuild your credit.
Myth #8: I have a second mortgage on my home, so a short sale is not an option.
Fact: If you meet the other eligibility requirements, you may be able to obtain a short sale through our program even though you have a second mortgage. For example, under our short sale program, we are offering up to $6,000 to subordinate lien holders – who are like second mortgage companies - in exchange for releasing the subordinate lien, extinguishing the underlying indebtedness and waiving the right to pursue deficiency.
Steps To Get Started With A Freddie Mac Short Sale
- Find out if Freddie Mac owns your mortgage by visiting our Loan Look-up Tool.
- If Freddie Mac owns your loan, reach out to your mortgage servicer. Their telephone numbers and mailing address should be listed on your monthly statement or coupon book.