Buying a home after a short sale or foreclosure
Often called boomerang buyers, home buyers desiring to purchase a home after they have dealt with a short sale or foreclosure need to understand the implications, consequences and results of the foreclosure so that they can make an informed decision on purchasing or applying for another mortgage in the future.
One of the positives to purchasing after a foreclosure or short sale is that it's not as difficult as it used to be. 10 years ago it was almost impossible to purchase a home after foreclosure and even up until five years ago buyers had to wait at least 2 to 3 years in order to apply again. But today, things have changed and certain mortgage providers are making it easier for previous homeowners to get themselves back into homeownership.
You've already become a homeowner so lenders understand that at one point you had the resources and the credit history in order to be approved for a mortgage loan. Regardless of what has brought you to this point after a short sale or foreclosure, either a hardship, job loss, death or relocation, now is the time that you're considering purchasing a home again. Getting a mortgage can be difficult, especially if you've not saved any money or have not corrected your credit history over the past 1 to 2 years. If you've recently found yourself out of a foreclosure or short sale you need to spend at least 12 to 18 months regaining your credit history, improving your credit score, and maintaining your level of income. Lenders will review all of your past credit history including a short sale or foreclosure that is now on your record for at least seven years to determine if you are a good candidate for another mortgage loan. Reestablishing your credit is not difficult but it does take perseverance and discipline. Saving a little bit of money so that you have helped when it comes to a down payment, closing costs and other fees associated with purchasing a home shows lenders that you're willing to do the groundwork needed in order to apply for a loan. But, not only apply but maintained that loan and not fall back into a foreclosure or short sale within the next few years, or ever!
If you're looking at reestablishing your credit and improving your FICO score make sure you've consistently paid your bills on time, kept your credit account balances low, monitored your credit report for any inaccuracies or mistakes and maintained a smaller number of credit accounts.
Waiting guidelines vary among lenders. The Federal Housing Administration or FHA requires a three-year waiting period and most lenders will follow that guideline after a short sale or foreclosure. Short sales usually provide a shorter waiting. Since you have communication with your lender and trying to sell the property rather than simply walking away from it. Many short sales offer a 12 to 18 month waiting period and foreclosures are typically three years unless you can prove to the lender that the foreclosure occurred through no fault of your own. If you can, the waiting period is reduced to just 12 months. You'll also need to prove that the factors leading up to the foreclosure reduced your income by 20% or more for at least six months. If you are fired or you quit your job you may not qualify.
The Department of Housing and Urban Development requires a full recovery from whatever event that caused the foreclosure. They will pay close attention to how you've kept up with rent and your billing payments. You may also be required to attend a housing counseling session 30 days before you apply for the loan.
Fannie Mae and Freddie Mac require applicants with foreclosures on their records to wait seven years. However, their lenders may allow for extenuating circumstances but it is typically longer than the FHA.
Ohio and other states including individual counties and even cities have specific rulings, laws, and requirements about lenders and how they will handle mortgage applications after a foreclosure. While the national lenders and mortgage providers such as FHA, Fannie Mae and Freddie Mac have their own rulings, conventional loans through private lenders may have other options. The best thing to do if you're 6+ months out of a foreclosure or short sale is to contact either one of our real estate agents or a lender in the area that you feel comfortable with and ask them about the requirements and steps you can be taking today to improve your credit history so that you can apply for a mortgage in the future.
Nobody likes to be stuck in a rental or home situation that they're desperately trying to get out of. By taking steps today you can improve your chances in the future to apply for a loan and purchase a home. If you have more questions feel free to give us a call at any time or browse our website for more information and articles on foreclosures, short sales and your credit.