As of August 16th 2014, clients who have had a short sale or deed in lieu of foreclosure will officially have to wait twice as long to apply for a home loan.
Fannie Mae recently announced that the waiting period after a short sale or deed in lieu of foreclosure will increase from 2 to 4 years.
Call us and we can help you determine when you will be able to purchase again.
CAN I BUY ANOTHER HOME AFTER A SHORT SALE?
New rules for 2014 home buyers
It is a simple question, but the answer is somewhat complex. Here is what you need to know and questions that you will need to answer:
1. Was your short sale an FHA, VA or Conventional (FANNY/FREDDIE) loan?
2. Was the loan delinquent during the 12 month period prior to the short sale?
3. Was the home in either pre-foreclosure or foreclosure?
4. Did you have a loan modification where the lender lowered the amount owing on your
5. Have you been current on all your bills for the past 12-24 months?
6. Is your current credit score (FICO) 620 or above?
7. Do you know the exact date that the mortgage insurance claim was paid on your short
Sale? This will be the date that is used to determine when you can purchase again.
8. Do you have money saved for a down payment and closing costs?
9. Was the short sale due to a hardship situation? Must show proof.
A. Job loss or decrease in income of at least 20% for a period of six months or more.
B. Death of an immediate family member (primary wage earner).
D. Job transfer that resulted in travel time to work of 2 or more hours each way
(approx 50 miles).
E. Major uninsured illness.
The answers to the above questions will help determine the type of loan you may qualify for and the waiting period before you can purchase again.
Getting ANY TYPE of Loan After a Short Sale
Note: the waiting period does not start on the day that the lender agreed to the short sale. It starts on the day the short sale closed and the property ownership was transferred to the new owner. Thus, it could be months or even a year after the short sale was first started or agreed upon.
Getting an FHA Loan After a Short Sale
FHA LOAN IN ONE YEAR
If you had no mortgage late payments in the 12 months leading up to your short sale, and if the short sale was a result of an acceptable extenuating circumstance (see item 9 above), then you can get an FHA loan (3.5% down payment) one year after the completed short sale.
30 days before applying for your new FHA loan you must complete a minimum one hour home ownership counseling session with an approved HUD counselor. A list of agencies can be obtained by going to www.hud.gov or by calling 1-800-569-4287. You may have to pay for this service.
FHA LOAN IN THREE YEARS AND ONE DAY
If your short sale was on an FHA loan, then you probably will not qualify for the above program. FHA will grant a mortgage three years and one day after a short sale, providing you have good credit between then and now.
If you had extenuating circumstances (see 9 above), you may want to discuss this with your lender to see if a waiver can be obtained in order to purchase earlier than the three year and one day time period.
FHA LOAN IMMEDIATELY AFTER A SHORT SALE
With FHA’s prior guidelines, you can buy a home immediately after a short as long as the mortgage and existing debt has zero late payments in the past 12 months. Extenuating circumstances that lead to your short sale will also have to be documented such as certain hardships like job loss and subsequent job transfer/ relocation at least 2 hours drive time from prior residence, catastrophic medical bills (and/ or possible death) incurred by a member of the borrower’s “nuclear family. Be sure to speak to a qualified and knowledgeable FHA lender prior to applying for this type of financing.
You cannot have any outstanding debt with a Federal agency that is in delinquent status. Lenders will run a CAIVRS REPORT to determine if you owe any government loans (FHA, VA, USDA). This includes previous mortgages, student loans, liens etc.
Getting a Conventional Loan After a Short Sale
CONVENTIAL LOAN TWO YEARS AFTER A SHORT
You can buy a house after two years with a 20% down payment using a conventional loan. While waiting 2 years after your short sale, you should get to work on improving your credit rating and saving for the down payment. A 20% down payment not only helps you buy a home sooner after a short sale, but helps avoid expensive mortgage insurance on loans with less than 20% down payment.
CONVENTIONAL LOAN FOUR YEARS AFTER A SHORT SALE
You will have to wait 4 years if you only have 5%-10% down payment. You could possibly wait just 2 years if you have extenuating circumstances (see item 9 above) that led to the short sale of your home. These loans are guaranteed by FREDDIE/FANNY.
CONVENTIONAL LOAN WITHIN THE FIRST YEAR AFTER A SHORT SALE
Currently there are a limited number of lenders that will loan immediately after your short sale with a minimum of 20-30% down and 12 months of reserves. The interest rate is higher than the interest on a normal loan would be. Minimum FICO score will be around the 680 level.
Getting a VA Loan After a Short Sale
VA LOAN TWO YEARS AFTER A SHORT SALE
You can buy a house with a VA loan (no down payment) two years after completing a short sale (on a prior VA loan).
VA LOAN ONE YEAR AFTER SHORT SALE
If the home you sold on a short sale was either a VA loan or a non VA loan, your wait time may be less than 2 years if you have a clear CAIVRS.
VA LOAN IN LESS THAN ONE YEAR AFTER SHORT SALE
For some VA lenders, the waiting period after a short sale can be as little as one month, if you have not been late on any mortgage payments before the final short sale and you have a credit score (FICO) of 660 or better . You might also qualify for automated underwriting approval.
NOTE: There is no waiting period if you had zero late payments on anything — not on your mortgage nor on any credit cards, auto loans, or other consumer accounts, AND if the short sale was not a result of you taking advantage of declining market conditions. So if you chose to walk away because you were upside down on your mortgage, that disqualifies you for the no waiting period and you’ll need to wait out the two years
In general, VA requires a 2 year waiting period from a major derogatory event including a short sale, bankruptcy, or foreclosure.
Getting Ready to Buy After Short Sale
Two years of Federal Tax Returns 1040’s (All Schedules)
Two years of W2s
Two years of older tax returns, if you have them, to help the lender look at how your income was before the hardship that caused your short sale started
One month’s most recent pay stubs
Most recent two months’ worth of bank statements to show where the down payment/closing costs are coming from (all pages even blank ones in a set)
Letter with details of the circumstances of the i.e. foreclosure, short sale, your medical condition, how it impacted your income, and if you continue to be affected by the medical condition, or if you are back to working your normal hours. You will want to include dates to help the lender establish a timeline.
Before you run out and purchase a home talk to a well qualified, knowledgeable lender. Get qualified for a loan (not just a simple pre-qualification). If you do not have a lender, I would be happy to recommend one to you. Just call 909-631-7200