The housing market that began to rebound in 2012 has finally brought with it some good news for borrowers, particularly for homebuyers and existing homeowners with less-than-perfect mortgage histories. Here is everything you need to know about Purchasing after a short sale or foreclosure.
If you have been negatively impacted by a previous short-sale or foreclosure, follow the steps outlined below to begin your journey back to homeownership.
1 Get a recent copy of your credit report
Loan program options are largely determined by each lender’s underwriting guidelines for each type of derogatory credit event.
What is a derogatory credit event?
If you have ever had to renegotiate the terms of your loan, or had to relinquish ownership of a property, your credit report may likely contain references to one of these items listed below. Take a look through your credit report, preferably a tri-merge credit report, for any notes under those impacted mortgages (HINT: Look in the Remarks column of any old mortgage tradelines that show a lot of missed payments).
It is important to note that the damaging effect that a derogatory credit event makes on lowering your credit score may be reduced if your lender reports a zero balance due instead of an outstanding balance due. For more information on how your credit score is calculated, please read.
Your credit history is reported for a period of 10 years from the date of occurrence, so if you find any discrepancies or errors in your credit report, please contact the credit bureaus as soon as possible and work towards getting your payment history corrected and ask that your data be reported accurately.
Forbearance– Your lender has agreed to make temporary changes to the terms of your original loan, such as providing a lower interest rate.
Repayment Plan – Your lender has agreed to temporarily accept less than the full amount due on your monthly mortgage payment for a certain period of time and allow you to pay the full overdue amount at a later date.
Loan Modification – As the phrase implies, your lender has formally modified the terms of your original loan, such as providing a lower interest rate, or making a principal balance reduction.
Chapter 7 Bankruptcy – All secured debts, including your car and home, are canceled.
Chapter 13 Bankruptcy – A repayment plan is set up so you can keep your car and remain in your home.
Foreclosure – Through court order, the bank becomes the owner of the property and sells the home. Each state has its own rules when it comes to foreclosure. For example, New York enforces judicial foreclosure, while California uses non-judicial foreclosure (also known as power of sale) mainly because it’s faster and less expensive.
Deed-in-Lieu of Foreclosure & Pre-Foreclosure – The homeowner voluntarily transfers title of the property back to the bank in return for a release from any financial liability.
2 Use the waiting period eligibility matrix to determine what you can qualify for
In addition to a waiting period, the type of financing you will be eligible for is largely determined by your credit score, loan amount, debt-to-income ratio (DTI), and your loan-to-value ratio (LTV).
Please note our examples are for general discussion and research purposes only and we assume that you will be purchasing or refinancing your primary residence. For minimum credit score requirements, or if you are purchasing a second home or investment property, or looking for a cash-out refinance, please contact us at 1-888-785-0430 for program-specific guidelines and possible recent underwriting changes.
The waiting period for each loan program is indicated in months. These are general waiting periods, and you may be eligible for shorter waiting periods depending on your unique situation and transaction.
Recorded Date versus Settlement Date
When title for a property is transferred to another entity, there are two dates that may be reflected in public records: Settlement Date and Recorded Date. For example, a property may have a Settlement Date of 8/10/2015 and a Recorded Date of 4/8/2016. To accurately determine how many months has passed for qualifying purposes, you should always use the Recorded Date as your starting period.
Not sure when your Recorded Date was?
Contact us and we will look it up for you.
Modified Mortgage – If you had a modified mortgage, the waiting period for a Fannie Mae or Jumbo loan is 24 months. There is no waiting period for Freddie Mac, FHA, VA, USDA, and Jumbo loans.
Chapter 7 Bankruptcy – If you had filed for Chapter 7 bankruptcy, the waiting period for Fannie Mae and Freddie Mac is 48 months. For FHA and VA, it’s 24 months, USDA is 36 months, and Jumbo is 48 months.
Chapter 13 Bankruptcy – If you had filed for Chapter 13 bankruptcy and your case was dismissed/discharged, the waiting period for Fannie Mae and Freddie Mac is 24 months/48 months. For FHA, the waiting period is 12 months/0 months, VA is 12 months/12 months, USDA is 36 months/36 months, and Jumbo is 48 months/48 months.
Foreclosure – If you had a foreclosure, the waiting period for Fannie Mae and Freddie Mac is 84 months, FHA is 36 months, VA is 24 months, USDA is 36 months, and Jumbo is 96 months.
Deed-in-Lieu of Foreclosure & Pre-Foreclosure – If you had a deed-in-lieu of foreclosure or a pre-foreclosure, the waiting period for Fannie Mae and Freddie Mac is 48 months, FHA is 36 months, VA is 12 months, and USDA has no waiting period. The Jumbo loan waiting period is 48 months.
Short-Sale – If you had a short-sale, the waiting period is the same as deed-in-lieu of foreclosure & pre-foreclosure.
3 Get Preapproved
The best way to determine all of your home financing options is to contact a lender that is experienced with helping borrowers that have had a previous derogatory credit event such as short-sale or foreclosure and get officially preapproved.
An experienced lender may also offer lending solutions that are outside of conventional and government agency guidelines through a Portfolio Loan. Portfolio lenders are not bound to follow specific agency underwriting guidelines, so they can be much more aggressive with waiting periods. For example, some portfolio loans require a waiting period as little as 12 months after a short-short, foreclosure, or deed-in-lieu of foreclosure.
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