FHA Shortens the Waiting Period for new loans after Short Sale, Foreclosure, Deed-in-Lieu of Foreclosure, or Bankruptcy...

Well, I will be emailing many of my past short sale seller clients shortly. Last week, FHA issued Mortgagee Letter 2013-26, which in a nutshell, shortens the waiting period to get a new mortgage loan for folks who did a short sale, deed-in-lieu of foreclosure, foreclosure of bankruptcy. This waiting period to obtain a new FHA loan for a purchase for these folks has generally been about 3 years after a foreclosure or short sale. Now, for potential buyers who had a "defined Economic Event" can get a new FHA loan for a purchase as soon as 12 months after a short sale, deed-in-lieu of foreclosure, foreclosure, or bankruptcy. This create a huge opportunity for folks who suffered hardship during the recession.

To quote part of Mortgagee Letter 2013-26 directly:
"As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage. 

To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that: 

• certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
• the borrower has demonstrated full recovery from the event; and,
• the borrower has completed housing counseling.

Housing counseling is an important resource for both first-time home buyers and repeat home owners. Housing counseling enables borrowers to better understand their loan options and obligations, and assists borrowers in the creation and assessment of their household budget, accessing reliable information and resources, avoiding scams, and being better prepared for future financial shocks, among other benefits to the borrower."

So what does this mean? A Sacramento borrower who can now qualify for an FHA loan under this Mortgagee Letter STILL must meet other standards of credit-worthiness. You must have solid income, no recent delinquent (late) payments, meet the "debt-to-income ratio" requirements, etc. BUT if you did a short sale, deed-in-lieu of foreclosure, foreclosure, or filed bankruptcy 12+ months ago you may now qualify much sooner for a new mortgage.

Some examples of "defined Economic Events" include things like loss of employment (layoff, company closed,  for you or a spouse, ex-spouse, etc), loss of household income (like in the case of a furlough, reduction of hours for you or a spouse, ex-spouse, etc.), and others.  You will need to prove you had good credit before the economic event took place, and you will need to document this.

One thing I will point out, is lenders may not be super quick to adopt the new guidelines in this Mortgagee Letter...so if you call your favorite lender right this very minute, they may not be prepared to give you a loan right away. These new guidelines were just released on August 15, 2013 -- so it may take weeks or months for lenders to start actually lending based on these guidelines. If you need a referral to a good loan officer who can help you navigate this, email me and I am happy to point you in the right direction.

Quoted in a Sacramento Business Journal article about folks purchasing homes after doing a short sale...

Over the last couple months I have written a couple posts about the general qualifications to and waiting periods to make a home purchase after a short sale, foreclosure, or bankruptcy. Different types of loan have different requirements. For example, the requirements are different for FHA loans vs Conventional loans.

Well last week I was contacted by journalist Michael Shaw with the Sacramento Business Journal for an article he was writing about folks who have returned to the Sacramento real estate market to make a home purchase after completing a short sale. You can read the article from October 28th's edition of the Sacramento Business Journal "Owners who lost homes try buying again" here.

Yes - if you completed a short sale on your home, in many cases you can be eligible to qualify for a new mortgage loan within a couple years. OR if you did not miss any payments leading up to your short sale (yes I have completed short sales where the seller hasn't missed a single payment!) under certain circumstances you regain your purchasing ability almost immediately. As mentioned in the article, if you sold via a short sale and are thinking about purchasing in the next year or so -- start the planning process now. Meet with a trusted loan officer who can run your credit. Aside from the short sale, the rest of your credit must be pretty clean. By clean, I mean no late payments for the last year, few or no open collections, no liens, judgments, etc. Be proactive and make sure you can present the best financial scenario possible when the time is right to buy.

I have worked with clients who purchased again after a short sale...and I am helping others get ready to purchase next year. Also while the article specifically addresses buying after a short sale, you also have purchase options after bankruptcy and foreclosure. If you need a referral to a great loan officer as you prepare to give home ownership another try, just email me.

How long after a short sale, foreclosure, or bankruptcy do you have to wait before getting approved for a new Conventional mortgage loan??

I am frequently asked how long someone must wait to be able to buy a house and qualify for a mortgage loan after a short sale, foreclosure, deed in lieu of foreclosure, or bankruptcy? Over the next couple weeks I will post the current underwriting guidelines for different types of mortgage loans. Of course underwriting guidelines change from time to time, but these standards are current as of now. A couple weeks ago, I posted about the FHA loan waiting period requirements. Today, I am posting Conventional loan waiting period requirements.

Conventional loans are commonly used in Sacramento. They generally require a minimum of 5-10% downpayment for loans in Sacramento, Placer, El Dorado, and Yolo Counties. Of course there are some special loan programs as well that may require a smaller downpayment. It is not just a loan for first time buyers, but also investors, and move-up buyers...

After Foreclosure, or Deed in Lieu of Foreclosure:
-7 years from date the foreclosure was completed and transferred back to the bank.
-3 years from the date foreclosure was completed and transferred back to the bank may be acceptable if the foreclosure was the result of "extenuating circumstances." You must have at least 10% down and it must be a primary residence under these conditions. Examples of extenuating circumstances for obtaining a new Conventional loan are defined as "non-recurring events that are beyond the borrower's control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

After Short Sale:
-7 years from the date the short sale closed and transferred to the new owner if you have less than 10% downpayment.
-4 years from the date the short sale closed and transferred to the new owner with 10% downpayment.
-2 years from the date the short sale closed and transferred to the new owner with 20% downpayment.
-2 years from the date the short sale closed and transferred to the new owner with 10% downpayment with acceptable extenuating circumstances.

After Chapter 7 Bankruptcy:
-4 years from the date of discharge with re-established credit paid as agreed.
-2 years from the date of discharge may be acceptable if the bankruptcy was caused by acceptable extenuating circumstances.

After Chapter 13 Bankruptcy:
-2 years from the date of discharge with re-established credit paid as agreed.
-4 years from the date of dismissal date.

Of course, you must speak to a loan officer in order to qualify for a new conventional mortgage...I am happy to point you in the right direction to a great loan officer if you want to explore if you qualify after experiencing a short sale, foreclosure, deed in lieu, or bankruptcy.

How long after a short sale, foreclosure, or bankruptcy do you have to wait before getting approved for a new FHA mortgage loan??

I am frequently asked how long someone must wait to be able to buy a house and qualify for a mortgage loan after a short sale, foreclosure, deed in lieu of foreclosure, or bankruptcy? Over the next couple weeks I will post the current underwriting guidelines for different types of mortgage loans. Of course underwriting guidelines change from time to time, but these standards are current as of now.

I will start with FHA loan purchase requirements, since most of the buyers in Sacramento seem to be using FHA loans. FHA loans generally require a 3.5% downpayment, the property purchased must be used as a primary residence, and as of right now a buyer can make a purchase of up to $580,000 in Sacramento, Placer, El Dorado, and Yolo Counties. It is not just a loan for first time buyers...

After Foreclosure, or Deed in Lieu of Foreclosure:
-3 years from date the foreclosure was completed and transferred back to the bank.
-Less than 2 years, but not less than 12 months from the date foreclosure was completed and transferred back to the bank may be acceptable if the foreclosure was the result of "extenuating circumstances." Examples of extenuating circumstances for obtaining a new FHA loan are limited to serious documentable illness or death of a wage earner on the loan that was foreclosed. Unfortunately for the purpose of obtaining a new FHA loan to buy a home after foreclosure, circumstances like divorce or job transfer do not qualify as extenuating circumstances.

After Short Sale:
-3 years from the date the short sale closed and transferred to the new owner.
-No waiting period if the borrower had no late payments on any mortgages and consumer debts within the 12 month period preceding the short sale.

After Chapter 7 Bankruptcy:
-2 years from the date of discharge with re-established credit paid as agreed, or no new credit obligations incurred.
-Less than 2 years, but not less than 12 months from the date of discharge may be acceptable if the bankruptcy was caused by acceptable extenuating circumstances and the borrower has since exhibited a documented ability to manage financial affairs in a responsible manner.

After Chapter 13 Bankruptcy:
-1 year payout period under bankruptcy has elapsed and the borrower's payment performance has been satisfactory and all required payments are made on time.

Of course, you must speak to a loan officer in order to qualify for a new mortgage...I am happy to point you in the right direction to a great loan officer if you want to explore if you qualify after experiencing a short sale, foreclosure, deed in lieu, or bankruptcy.

If you are curious about the Conventional Loan waiting periods, click here.