Will Short Sale Prevent Me From Getting VA Home Loan Later?
From MyFICO: A foreclosure remains on your credit report for 7 years, but its impact to your FICO® score will lessen over time. While a foreclosure is considered a very negative event by your FICO score, it's a common misconception that it will ruin your score for a very long time. In fact, if you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as 2 years. The important thing to keep in mind is that a foreclosure is a single negative item, and if you keep this item isolated, it will be much less damaging to your FICO score than if you had a foreclosure in addition to defaulting on other credit obligations. (personal note - I tip my hat to you, sir. Regardless of party, we owe our Vets a debt of gratitude. If I had my way, a VA loan would ignore the past short sale. I wish you well. And thank you for serving)
I have this exact same issue.  Event the dollar amounts are close.  Here is how I am looking at the problem. Option 1:  Walk away.  Goodbye credit for 7+ years.  Luckily I can operate in cash with the extra $800 per month, but should I have a non medical emergency I might be SOL.  With a family I am not sure I am willing to risk it.  What if my car dies the month after I quit paying and the bank chooses to foreclose?  What if my wife or I lose our job and we have no credit to live? Option 2:  Short sale.  Good if I can let it happen.  I might or might not be on the hook for the balance depending on the state.  If I am on the hook, okay, suck but I could live.  If I am not on the hook, it is going to hurt my credit the same as foreclosure.  It isn't easy, you need an experienced real estate agent and a willing bank.   Option 3:  Keep paying.  I am going for this.  At the moment I can still afford the house even though it is at the expense of some luxuries in my live.  (Cable TV, driving to work, a new computer).  I am wagering the market fixes itself in the next several years.  Should the S hit the fan in most any manner, the mortgage is the first thing I stop paying. I don't know what other options I have.  I can't re-fi; too upside down.  I can't sell; the house isn't worth the mortgage (and I don't have the cash for the balance).  I can't walk away; the credit hit wouldn't be worth the monthly money gain. I have no emotions about the house.  I am in a real bad investment and getting out now seems like a good idea, but I am going to guess that having the house 10 years from now is better than not.  I don't care about the bank at all, nor do I feel I owe them the money because I took the loan.  They assumed risk loaning me the money in the first place.  The minute it gets worse for me than for the bank; I will stop paying. Summary Not much to do without a serious consequence.  I would suggest holding out for the very long term if you feel you can.  The best way to minimize the bad investment is to ride it out and pray it gets better.  I am thinking I am a landlord for the next 10 years. No, 401(k) and IRA accounts are not at risk when you default on a mortgage, even in states that aren't non-recourse. In states where mortgages are non-recourse loans, the bank isn't allowed to go after you at all. They get the keys and whatever they recover from the house sale is it. I have USAA and the home loan process was a nightmare.  My account was also compromised but I caught it immediately because they sent me an alert of a large sum of money being transferred to my checking account, so there is that.  I just found out that Navy Federal finally accepts Army veterans (it hadn't up until a couple of years ago) so I have an account with them just so I can get different loan options and credit card rates.  Navy Federal has minimums for getting ATM refunds while USAA doesn't, so for now I just have a savings account with them. "Paperwork prevails.  What you have is a dealer who get a kickback for sending financing to that institution. And the dealer pretty much said ""We only get paid our kickback at two levels of loan life, 6 and 12 months."" You just didn't quite read between the lines.  This is very similar to the Variable Annuity salespeople who tell their clients, ""The best feature about this product is that the huge commissions I get from the sale fund my kid's college tuition and my own retirement. You, on the other hand, don't really do so well.""  Car salesmen and VA sellers." I'm just began playing in the stock   market. I assume you mean that you're not using real money, but rather you have an account with a stock simulator like the one Investopedia offers. I am hopeful that's the case due to the high level of risk involved in short selling like you're describing. Here is another post about short selling that expands a bit on that point. To learn much more about the ins and outs of short selling I will point again to Investopedia. I swear I don't work for them, but they do have a great short selling tutorial.  When you short sell a stock you are borrowing the stock from your broker. (The broker typically uses stock held by one or more of his clients to cover the loan.) Since it's basically a loan you pay interest. Of course the longer you hold it the more interest you pay. Also, as Joe mentioned there are scenarios in which you may be forced to buy the stock (at a higher price than you sold it). This tends to happen when the stock price is going against the short sell (i.e. you lose money). Finally, did anyone mention that the potential losses in a short sell are infinite? If your planning on shorting the stocks be careful, while the value of the retail sector may be declining there will be a lot of back and forth over the next ten years, and as REITs discounts to nav increases, there is huge opportunities for buyouts from developers who have other use ideas for the real estate. The real estate will always have value, even if it's not as a shopping center. "Concise answers to your questions: Depends on the loan and the bank; when you ""accelerate"" repayment of a loan by applying a pre-payment balance to the principal, your monthly payment may be reduced. However, standard practice for most loan types is that the repayment schedule will be accelerated; you'll pay no less each month, but you'll pay it off sooner. I can neither confirm nor deny that an internship counts as job experience in the field for the purpose of mortgage lending. It sounds logical, especially if it were a paid internship (in which case you'd just call it a ""job""), but I can't be sure as I don't know of anyone who got a mortgage without accruing the necessary job experience post-graduation. A loan officer will be happy to talk to you and answer specific questions, but if you go in today, with no credit history (the student loan probably hasn't even entered repayment) and a lot of unknowns (an offer can be rescinded, for instance), you are virtually certain to be denied a mortgage. The bank is going to want evidence that you will make good on the debt you have over time. One $10,000 payment on the loan, though significant, is just one payment as far as your credit history (and credit score) is concerned. Now, a few more reality checks: $70k/yr is not what you'll be bringing home. As a single person without dependents, you'll be taxed at the highest possible withholdings rate. Your effective tax rate on $70k, depending on the state in which you live, can be as high as 30% (including all payroll/SS taxes, for a 1099 earner and/or an employee in a state with an income tax), so you're actually only bringing home 42k/yr, or about $1,600/paycheck if you're paid biweekly. To that, add a decent chunk for your group healthcare plan (which, as of 2014, you will be required to buy, or else pay another $2500 - effectively another 3% of gross earnings - in taxes). And even now with your first job, you should be at least trying to save up a decent chunk o' change in a 401k or IRA as a retirement nest egg. That student loan, beginning about 6 months after you leave school, will cost you about $555/mo in monthly payments for the next 10 years (if it's all Stafford loans with a 50/50 split between sub/unsub; that could be as much as $600/mo for all-unsub Stafford, or $700 or more for private loans). If you were going to pay all that back in two years, you're looking at paying a ballpark of $2500/mo leaving just $700 to pay all your bills and expenses each month. With a 3-year payoff plan, you're turning around one of your two paychecks every month to the student loan servicer, which for a bachelor is doable but still rather tight. Your mortgage payment isn't the only payment you will make on your house. If you get an FHA loan with 3.5% down, the lender will demand PMI. The city/county will likely levy a property tax on the assessed value of land and building. The lender may require that you purchase home insurance with minimum acceptable coverage limits and deductibles. All of these will be paid into escrow accounts, managed by your lending bank, from a single check you send them monthly. I pay all of these, in a state (Texas) that gets its primary income from sales and property tax instead of income, and my monthly payment isn't quite double the simple P&I. Once you have the house, you'll want to fill the house. Nice bed: probably $1500 between mattress and frame for a nice big queen you can stretch out on (and have lady friends over). Nice couch: $1000. TV: call it $500. That's probably the bare minimum you'll want to buy to replace what you lived through college with (you'll have somewhere to eat and sleep other than the floor of your new home), and we're already talking almost a month's salary, or payments of up to 10% of your monthly take-home pay over a year on a couple of store credit cards. Plates, cookware, etc just keeps bumping this up. Yes, they're (theoretically) all one-time costs, but they're things you need, and things you may not have if you've been living in dorms and eating in dining halls all through college. The house you buy now is likely to be a ""starter"", maybe 3bed/2bath and 1600 sqft at the upper end (they sell em as small as 2bd/1bt 1100sqft). It will support a spouse and 2 kids, but by that point you'll be bursting at the seams. What happens if your future spouse had the same idea of buying a house early while rates were low? The cost of buying a house may be as little as 3.5% down and a few hundred more in advance escrow and a couple other fees the seller can't pay for you. The cost of selling the same house is likely to include all the costs you made the seller pay when you bought it, because you'll be selling to someone in the same position you're in now. I didn't know it at the time I bought my house, but I paid about $5,000 to get into it (3.5% down and 6 months' escrow up front), while the sellers paid over $10,000 to get out (the owner got married to another homeowner, and they ended up selling both houses to move out of town; I don't even know what kind of bath they took on the house we weren't involved with). I graduated in 2005. I didn't buy my first house until I was married and pretty much well-settled, in 2011 (and yes, we were looking because mortgage rates were at rock bottom). We really lucked out in terms of a home that, if we want to or have to, we can live in for the rest of our lives (only 1700sqft, but it's officially a 4/2 with a spare room, and a downstairs master suite and nursery/office, so when we're old and decrepit we can pretty much live downstairs). I would seriously recommend that you do the same, even if by doing so you miss out on the absolute best interest rates. Last example: let's say, hypothetically, that you bite at current interest rates, and lock in a rate just above prime at 4%, 3.5% down, seller pays closing, but then in two years you get married, change jobs and have to move. Let's further suppose an alternate reality in which, after two years of living in an apartment, all the same life changes happen and you are now shopping for your first house having been pre-approved at 5%. That one percentage point savings by buying now, on a house in the $200k range, is worth about $120/mo or about $1440/yr off of your P&I payment ($921.42 on a $200,000 home with a 30-year term). Not chump change (over 30 years if you had been that lucky, it's $43000), but it's less than 5% of your take-home pay (month-to-month or annually). However, when you move in two years, the buyer's probably going to want the same deal you got - seller pays closing - because that's the market level you bought in to (low-priced starters for first-time homebuyers). That's a 3% commission for both agents, 1% origination, 0.5%-1% guarantor, and various fixed fees (title etc). Assuming the value of the house hasn't changed, let's call total selling costs 8% of the house value of $200k (which is probably low); that's $16,000 in seller's costs. Again, assuming home value didn't change and that you got an FHA loan requiring only 3.5% down, your down payment ($7k) plus principal paid (about another $7k; 6936.27 to be exact) only covers $14k of those costs. You're now in the hole $2,000, and you still have to come up with your next home's down payment.  With all other things being equal, in order to get back to where you were in net worth terms before you bought the house (meaning $7,000 cash in the bank after selling it), you would need to stay in the house for 4 and a half years to accumulate the $16,000 in equity through principal payments. That leaves you with your original $7,000 down payment returned to you in cash, and you're even in accounting terms (which means in finance terms you're behind; that $7,000 invested at 3% historical average rate of inflation would have earned you about $800 in those four years, meaning you need to stick around about 5.5 years before you ""break even"" in TVM terms). For this reason, I would say that you should be very cautious when buying your first home; it may very well be the last one you'll ever buy. Whether that's because you made good choices or bad is up to you." Any publicly traded financial instrument can be sold short, in theory.  There are, however, many regulations associated with short sales of US equities that may prevent certain stocks from being sold short at certain times or through certain brokers. Some examples: the most basic requirement (this isn't a regulation, it's just the definition of a short sale) is that you or your broker must have access to someone willing to loan you his/her shares.  If you are interested in shorting a security with few shares outstanding or low trade volume, there may simply not be enough people in the world willing to loan you theirs.  Alternatively, there may be a shareholder willing to loan shares, but your broker may not have a relationship with the clearing house that shareholder is using.  A larger/better/different broker might be able to help. threshold securities list - since 2005, each day certain securities are not allowed to be sold short based on their recent history of liquidity.  Basically, if a certain number of transactions in a security have not been correctly settled over the past few days, then the SEC has reason to believe that short sales (which require extra transactions) are at higher risk of falling through. circuit breaker a.k.a. alternative uptick - since 2011, during certain market conditions, exchanges are now required to reject short sales for certain securities in order to prevent market crashes/market abuse. These are your options: Unfortunately this will not be a quick process. You should note that until a potential lender goes through a detailed review of your finances you have only been pre-qualified. This is not as good as pre-approved. With pre-qualified they are basing the determination on what you told them, not what you can prove.  Because you are aware of your short period of continuous employment you are best to be completely honest with a potential lender. That way you don't run into problems 30 days down the road when they realize the issue. The home seller will not be happy; and there was time and money wasted on down payments, credit checks, home inspections, and appraisals.  In the US in most markets while there is a significant risk that a particular house will not be available in 5 months, there is a very slight risk that a neighborhood will not be available in 5 months. There is some element of truth to what your realtor said.  The seller takes the house off the market after the offer is accepted but the contract is contingent upon, among other things, buyer securing the financing. A lower down payment can mean a higher chance of failing that. The buyer might be going through FHA, VA or other programs that have additional restrictions. If the buyer fails to secure a financing, that's weeks and months lost to the seller. In a seller's market, this can be an important factor in how your bid is perceived by the seller. Sometimes it even helps to disclose your credit score, for the same reason. Of course for your situation you will have to assess whether this is the case. Certainly do not let your realtor push you around to do things you are not comfortable with. Edit:  A higher down payment also helps in the situation where the house appraisal does not fare well.  As @Dilip Sarwate has pointed out, the particular area you are interested in is probably a seller's market, thus giving sellers more leverage in picking bids. All else equal, if you are the seller with multiple offers coming in at similar price level, would you pick the one with 20% down or 5% down? While it is true that realtors have their own motives to push through a deal as quickly as possible, the sellers can also be in the same boat. One less mortgage payment is not trivial to many. It's a complicated issue, as every party involved have different interests. Again, do your own due diligence, be educated, and make informed decisions. You'll be taxed when you sell the house, but not before that (or if you do some other transaction that realizes the gain, talk to your real estate attorney or accountant for more details). A Home Equity line-of-credit is simply a secured loan: it's a loan, conditioned on if you fail to pay it back, they have a lien on your house (and may be able to force you to sell it to pay the loan back). A short sale will be pretty bad for your credit report. It will linger for 7 years.  This may ruin your opportunity to buy in the new area. On the other hand you need to run the numbers, the last I looked into this, the bank will look at rent and discount it by 25%. So the shortfall of $800/mo (after adjustment) will reduce your borrowing power if you rent it out.  In general this is the idea. You rent for a year, and buy into the new area. If you short sell after this, while your credit is trashed, you still have your new home, and $50K less debt.  (Disclaimer - There are those who question the ethics of this, a willing short sale. I am offering a purely business answer and making no judgment either way. I owed $90K on a condo where others were selling for $20K. I paid until it came up enough that a lump sum got me out upon sale. The bank got its money in full)  An article on the differences between foreclosure and short sale. If you're planning to walk away from the house - don't invest any more money in it. Just be aware of the consequences. It may be worth considering a short sale if both the lenders will agree to erase the debt. If you're going to keep the house, then the fact that you're underwater now is irrelevant, and you should do your best to reduce the burden by paying off the higher rate loan. But, I personally think that accumulating enough cash to make you comfortable in case of a job loss for several months is a higher priority. I sold my house and had been in the market looking for a replacement house for over 6 months after I sold it. I found someone willing to give me a short term, 3 month lease, with a month to month after that, at an equitable rate, as renters were scarcer than buyers.By the time I found a house, there were bidding wars as surplus had declined (can be caused seasonally), and it was quite difficult to get my new house. However, appraisers help this to a degree because whatever the seller wants, is not necessarily what they get, even if you offer it. I offered $10k over asking just to get picked out of the large group bidding on the house. Once the appraisal came in at $10k below my offer, I was able to buy the house at what I expected. Of course I had to be prepared if it came in higher, but I did my homework and knew pretty much what the house was worth. The mortgage is the same as the lease I had, the house is only 10 years' old and has a 1 year warranty on large items that could go wrong. In the 3 months I've been in the house, I have gained nearly $8k in equity....and will have a tax writeoff of about $19,000 off an income off a salary of $72,000, giving me taxable income of $53,000... making by tax liability go down about $4600. If I am claiming 0 dependents I will get back about $5,000 this year versus breaking even. "You at least have some understanding of the pitfalls of shorting. You might not be able to borrow stock. You might not be able to buy it back when the time comes. You're moves are monitored, so you can't ""run away"" because the rules are enforced. (You don't want to find out how, personally.) ""Shorting"" is a tough, risky business. To answer your implicit question, if you have to ask about it on a public forum like this, you're not good enough to do it."