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Buying a Home After a Short Sale 2014

Buying a House after a Short Sale in 2014
There are many factors that will affect your ability to qualify for a loan in order to buy a house again after a short sale. If you have taken good care of your credit since the short sale, paid all your bills on time over the past 12 months, have between 3.5% – 20% saved for a down payment and of course, you have income to qualify for a new purchase, then it is possible to buy a house again in as little as 6 to 36 months after a short sale (and one of my clients actually purchased within 6 months through PNC Bank).

Buying a House with an FHA Back to Work Program 1 year after Short Sale.
FHA announced on August 15, 2013 that you may only need to wait one year to be able to buy again under the FHA’s Back to Work Program. FHA is willing to back loans for borrowers with as little as 3.5% down after having had a short sale, bankruptcy, or foreclosure. This is subject to guidelines such as having experienced an Economic Event which is beyond your control that results in a Loss of Employment, Loss of Income or a combination of both, which causes a reduction in the your Household Income of 20% or more for a period of at least 6 months.

With FHA’s prior guidelines, you can buy a home immediately after a short as long as the mortgage and existing debt has zero late payments in the past 12 months. Extenuating circumstances that led to your short sale will also have to be documented such as certain hardships like job loss AND subsequent job transfer/relocation at least 2 hour drive time from prior residence, catastrophic medical bills (and/or death) incurred by a member of the borrower’s “nuclear family. Please note that divorce and relocation by themselves are not considered an extenuating circumstances unless combined with other factors such as job loss, reduction of income by more than 20% over a 6 month period, or other hardships.

Buying a House with an FHA loan 1 year after a Short Sale.
You would qualify to buy again after a short sale IF you meet the following criteria: you can document a hardship, you were not late on your mortgage payments at the time of the short sale, proceeds from the short sale served as payment in full for the loan, you have a clear CAIVRS report (Credit Alert Verification Reporting System), and you have an M1 mortgage credit rating for that previous account.

Buying a House with a Conventional Loan & 20% Down.
You can buy a house after two years with a 20% down payment using a conventional loan. While waiting 2 years after your short sale, you should get to work on improving your credit rating and saving for down payment. Saving for a 20% downpayment not only helps you buy a home sooner after a short sale, but helps avoid expensive mortgage insurance on loans with less than 20% down payment. Some lenders give you the flexibility of coming up with the 20% downpayment using a combination of pledged personal assets. With Fannie/Freddie Loans, you will have to wait 4 years if you only have 10% down payment or possibly wait just 2 years if you have extenuating circumstances that lead to the short sale of your home.

Buying a House with a Conventional Loan 2 years after Short Sale.
You may be able to buy a house 2 years after a short sale with 10% downpayment if you can document and verify acceptable extenuating circumstances prior to your short sale. Examples of extenuating circumstances are one time events beyond your control that cause a significant and prolonged reduction in income or a catastrophic increase in your financial obligations. If you are ready to buy a home again with 10% downpayment, please send us a message below.
Mortgage after Short Sale Update: August 16, 2014
Fannie Mae Desktop Underwriter will change on August 16, 2014. For buyers after a short sale using conventional loan products, the waiting period will change from 2 years to 4 years after a short sale on Conventional loan products. These changes will apply on loans taken on or after August 16, 2014. For more information on how this affects your loan situation, please send us a message below. Note that the typical wait time to get an FHA mortgage after a short sale is 3 years. 
Buying a House with a VA Loan with Zero Down.
You can buy a house after a short sale with a VA loan 2 years after completing a short sale on a prior VA loan. For some VA lenders, the waiting period after a short sale can be as little as one month if you have not been late on any mortgage payments before the final short sale and you have a 660 or better credit score. You might also qualify for an automated underwriting approval and get a VA loan. In general, VA requires a 2 year waiting period from a major derogatory event including short sale, bankruptcy, or foreclosure.

Buying a House with a VA Loan 1 Year or less with Zero Down.
If your former loan on the home you short sold was either a VA loan or a non- VA loan, your wait time may be less than 2 years if you have a clear CAIVRS. CAIVRS is a report pulled by lenders for government loans (FHA, VA USDA) to verify that the borrower does not currently owe money to the government for previous mortgage, student loans, liens, etc. You must also document an acceptable hardship that led to the short sale such as unemployment, large medical bills not covered by insurance. Please send us a message by filling out the contact request form below to learn more information from the lenders that we work with.

Buying a House with 25% to 30% Down within 1 Year after Short Sale.
If you do not qualify for the FHA back to work program with 1 year wait after a short sale and you have saved 25% to 30% down payment, there are lenders willing to finance your home purchase with just 1 year waiting period after a short sale. The applicable interest rates are higher on loans with a 25% downpayment compared to a 30% downpayment loan. The rates are usually fixed for the initial 5 years or 7 years on a 30 year loan until you can refinance again (usually 3 years after a short sale). Some lenders may require a minimum loan amount of $300,000 and may require a credit score of 680 with 12 months of payments cash reserves.

Buying a House 3 Years after a Short Sale.
If it has been 3 years after your short sale event, you may now be eligible to buy again with as little as 3.5% down payment. Please be sure to check your credit report to confirm that the short sale was accurately reported on your credit report. Some recent inaccuracies are those of short sales being reported as foreclosures. The short sale is typically reported as settled for less than full balance. If this is not the case, i.e. it shows settled for less than full balance Chapter 5, 8 or 9 (synonymous to foreclosure) be sure to contact the creditor and get this corrected immediately.

Buying a House After your Short Sale in 2010, 2011 or earlier.
Those who have completed a short sale in 2009, 2010, 2011, and earlier years are most likely ready to apply for a loan after a 3 year waiting period has passed from the date of the short sale.  You may now be able to buy a home again in 2014 and apply for a loan without consideration of any special circumstances.

Buying a house After a Short Sale in 2013 with Extenuating Circumstances.
Your wait time to buy a house and qualify for a mortgage after a short sale in 2013 could only be 12 months to 24 months if you can prove that you have extenuating circumstances that led to your short sale. For example, extenuating circumstances are major illness or death of a wage earner, non-recurring situations that leads to a sudden, significant, and prolonged reduction in income or catastrophic increase in your mortgage payments and other financial obligations,. Note that divorce or a job relocation are not typically viewed by lenders as sufficient extenuating circumstances. Please send us a message below for more information.

What You Should Work On To Be Eligible to Buy A House After A Short Sale

  • Pay all your bills on time and improve your credit scores over time to be at least 620.
  • Request a copy of your credit report and correct any inaccuracies as early as possible with the credit reporting agencies. You may visit annualcreditreport.com to obtain a free copy of your credit report from Experian, Equifax, and Transunion.
  • To find out your exact waiting period after a short sale, find out when the mortgage insurance claim was paid on your prior mortgage after a short sale.
  • While renting, save as much money as you can for a down payment.
  • Keep a steady job/ income to qualify for a new loan.
  • If you would like to qualify for as much as you can to buy your dream home, hold off from signing up to new monthly obligations such as car loans and credit cards.
  • Receive homeownership counseling or a combination of homeownership education and counseling provided that each participant receives, at a minimum, one hour of one-on-one counseling from a HUD-approved housing counseling agencies. A list of agencies can be obtained online at https://www.hud.gov or calling: 1-800-569-4287. This is required to be completed 30 days before applying for a loan using FHA’s back to work program.

If you are are serious and absolutely ready to take the step of getting a pre-approval before shopping for a home, below you will find the typical documentation that the lender will ask from you:

  • 2012 and 2013 Federal Tax Returns 1040’s (All Schedules)
  • 2012 and 2013 W2’s
  • 2011 tax returns if you have them to help the lender look at how your income was before the hardship started
  • One month’s most recent paystubs
  • Most recent two months’ worth of bank statements to show where the down payment/closing costs are coming from (all pages even blank ones in a set)
  • Letter with details of the circumstances of the i.e. foreclosure, short sale, your medical condition, how it impacted your income, and if you continue to be affected by the medical condition, or if you are back to working your normal hours. You will want to include dates to help the lender establish a timeline.
    Note that the lender will need to find out more information on the property address that was sold in a short sale.  And as with all guidelines to obtaining new mortgages, the rules and guidelines can and do often change, so it’s always best to speak to a lender when you think you’re about 6-12 months from moving forward with a new purchase.  And if you have any other questions, please always fee free to contact us directly at (757) 303-0517.

Frank Biganski

Licensed real estate professional since 2002.

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