It has been estimated that over 7 million people lost their homes in either a short sale or foreclosure between 2007 and 2014. Many of these people are looking to re-establish home ownership and are curious as to how their mortgage incident will impact their home loan product options.
FHA Purchase or Refinance after a Short-Sale or Foreclosure
FHA, The Federal Housing Administration is the largest insurer of residential home mortgages and has one of the most lenient and flexible guidelines related to financing after a short sale or Foreclosure. The standard program requirements are three years or 36 months from a short-sale or foreclosure to purchase a new home or refinance an existing home.
FHA Back to Work Program
In addition to the standard FHA program that requires a waiting period of three years from a short-sale or foreclosure to purchase or refinance, the FHA Back to Work Program will shorten the waiting period to twelve months under very specific guidelines related to the economic circumstances that contributed to the short-sale, foreclosure or even bankruptcy. The most important requirement involves the documentation of a minimum of 20% loss of household income for a minimum of six months. The borrower would be required to provide federal tax returns or W2s that evidenced a minimum of 20% household income decline for a period of six months that contributed to the economic circumstances around the short-sale, foreclosure, or bankruptcy.
VA Purchase or Refinance after a Short-Sale or Foreclosure
For eligible Veterans and active duty members who have experienced a short-sale or foreclosure the waiting period between when they can purchase or refinance a home will be determined by the type of loan that they had at the time of default. If the Veteran had a conventional loan, the waiting period to purchase after a short sale is one year and two years from a foreclosure. If the Veteran had an FHA or USDA loan at the time of short-sale or foreclosure, the waiting period with many lenders will default to the FHA requirements of three years, but there are still many lenders that will allow for a minimum of one year from a short-sale and two years from a foreclosure on an FHA loan.
For a Veteran who previously experienced a short sold or foreclosed on a VA home loan, there can be some additional requirements to satisfy, to secure another VA loan. The waiting period of one year for a short-sale and two years from a foreclosure are still in place, but in the event that the department of Veteran Affairs experiences a financial loss related to your previous short-sale or foreclosure, you will only receive a portion of your eligibility entitlement. The limited entitlement can impact the maximum VA loan that the Veteran will qualify for. In many situations, the Veteran will pay back the loss to the department of Veteran Affairs to restore full eligibility.
USDA Purchase or Refinance after a Short Sale or Foreclosure
The Rural Development Guaranteed Housing Program or USDA is a loan program available to suburban or rural home buyers. The program offers up to 100% financing and typically lower than average interest-rates. USDA will require a minimum of three-years from a foreclosure or short-sale to utilize the program for a purchase or refinance.
Fannie Mae & Freddie Mac Purchase or Refinance after a Short-Sale or Foreclosure
Neither Fannie Mae nor Freddie Mac directly provide mortgages directly to borrowers, the two government sponsored agencies purchase and guarantee loans made by mortgage banks subject to loan amount, credit and underwriting guidelines. When it comes to short-sales and foreclosures loans that are insured by Fannie Mae and Freddie Mac require a minimum of four years from a foreclosure and seven years from a foreclosure.
Early in 2016, Fannie Mae reduced the mandatory waiting periods for a short-sale and foreclosure to two years under extenuating circumstances. A borrower will be required to provide a letter of explanation and document these one-time events that qualify as “extenuating circumstances” including job loss, illness, and even divorce.
Jumbo Loan Purchase after a Short-Sale or Foreclosure
A Jumbo loan is classified by the dollar amount of a loan. Any loan amount that exceeds the county high-balance loan limit (insert website calculator link) is considered a Jumbo mortgage. Jumbo mortgages are unlike FHA, VA, USDA, and loans that are insured by Fannie Mae or Freddie Mac in that the banks that make the mortgages do not have the ability to bundle and sell the Jumbo mortgages on the secondary mortgage markets. As a result Jumbo lenders approach mortgage incidents with a much higher level of scrutiny than other non- Jumbo mortgage loan programs. The majority of Jumbo lenders offering the very best interest rate terms will require a minimum of seven years from a short sale or foreclosure to qualify for a new mortgage. There are a select few of mortgage banks that will provide mortgage financing for a borrower who has experienced a short sale a minimum of four years ago subject positive credit history since the short-sale, but very few will allow for the purchase or refinance within seven years from a short-sale.
There are mortgage lenders that specialize in transactions for borrowers that have experienced a short sale or even foreclosure in as little as 1 day from the event. These programs have developed over the past three years as more and more home people who have experienced a short sale or foreclosure are now in a position to purchase a new home or refinance an existing property.
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