Wednesday, February 2, 2011

Waiting Periods after a Foreclosure or Short Sale

Here is what you need to know about getting a mortgage after a foreclosure or a short sale.

Definitions

• Foreclosure: Homeowner has stopped making mortgage payments, and the property is sold at auction.
• Short Sale: Homeowner sells the property to a buyer for less than the amount owed to the homeowner's current lender. The homeowner’s lender agrees to accept less than the amount owed on the mortgage, and allows the sale.

Conventional Loans - Foreclosure

• 7 years from the completion date of the foreclosure
• 3 years is permitted with extenuating circumstances (death of a spouse, serious illness). Divorce is not an extenuating circumstance.
–Minimum 10% down
–Only primary residences. No second homes or investment properties.

Conventional Loans – Short Sales

• 2 years with 20% down
• 4 years with 10% down
• 7 years with less than 10% down
• With extenuating circumstances, 2 years is permitted with 10% down

FHA Loans - Foreclosures

• 3 years from the completion date of the foreclosure
• Exceptions to the 3-year period are allowed with extenuating circumstances

FHA Loans – Short Sales

• No waiting period if the borrower was current on their mortgage payment at the time of the short sale, AND
–There were no late payments on the mortgage for the 12 months prior to the loan application date
–There were no late payments on any installment debt for the previous 12 months
• 3 years if the borrower was in default at the time of the short sale. Exceptions are allowed if there are extenuating circumstances and credit was good up until the time of the default.

Other FHA Considerations

• No new FHA loans if the borrower pursued the short sale simply to take advantage of declining market conditions, and
• Wants to purchase a similar or superior property at a reduced price within a reasonable commuting distance

VA Loans – Foreclosures & Short Sales

• Foreclosures
–2 years from the completion date
–1 year with extenuating circumstances
• Short Sales
–VA does not have a specific policy regarding short sales
–Most lenders follow the FHA guidelines

Additional Restrictions

• The borrower must have “re-established good credit”, meaning they had no late payments, collection accounts, or any other derogatory credit for the 12 months prior to the loan application
• To re-establish credit, you must use credit
• The guidelines mentioned here are ONLY for Fannie Mae, FHA, and VA. The borrower must ALSO comply with the guidelines of the individual lender and the mortgage insurance company (if the loan is a conventional loan).


Want to watch our video of this tip? Check it out on our web site by clicking here.

Want to make sure your loan closes? Call the Mortgage Experts at 303-345-3683.

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