Home Loan Information: Buying After Foreclosure Or Short Sale
Buying after a foreclosure or short sale may seem like a daunting task, but it’s not impossible and may even be easier than you think. At Afterforeclosure.com we help borrowers learn about their options after a foreclosure or short sale.
If you’re thinking about buying a home after a foreclosure, this is the place to start. Read through this page to learn more about the home loan options available to you.
Common Challenges To Obtaining A Home Loan After Foreclosure
A foreclosure is a mark against you, but it does not have to be a permanent mark. You have the power to take control of your credit and financial situation and eventually buy a new home. These are a few of the most common challenges to expect after foreclosure:
- Inaccurate Credit Report. The most common challenge to securing a mortgage after a foreclosure is an inaccurate credit report. It’s not unusual for a foreclosure to show up as a “balance owed” or “open” account on your credit report. Either indication will hurt your chances of obtaining a loan, but there are actions you can take to fix the problem. Contact both the credit reporting agency (such as Equifax, Experian, or TransUnion) and the person/agency/company – likely the bank or lender you had your mortgage with – that provided the incorrect information for help fixing the way it is reported.
- Poor Credit History. You may have poor credit from the foreclosure alone or from a variety of contributing factors. Whatever the reason for a poor credit rating, you will need to be proactive about repairing it. Be forewarned, though, this takes time. As most home loans require a 1-3 year waiting period following a short sale or foreclosure, using that time to rebuild your credit is critical. Obtaining and diligently paying on a secured credit card or an auto loan is a good starting place.
Documents And Information You’ll Need Before Applying For A New Loan
If you are serious about obtaining a new home loan, it’s never too early to start preparing. The loan officer will want a lot of information to get the process started. Save time later by collecting and saving this information in a safe place before you apply for the loan. You will need to provide this information for everyone named on the loan application:
- Address to your place of residence for the past two years
- Social Security numbers
- Names and location of your employers for the past two years
- Gross monthly salary at your current job(s)
- Pertinent information for all checking and savings accounts
- Pertinent information for all open loans
- Complete information for other real estate you own
- Approximate value of all personal property
- Certificate of Eligibility and DD-214 (for veterans only)
- Current check stubs and your W-2 forms for the past two years
- Personal tax returns for the past two years, current income statement, and business balance sheet for self-employed individuals
Buying A Home After A Foreclosure
FHA insured mortgages are generally available after a 3 year waiting period for borrowers whose property was foreclosed on or given a deed-in-lieu of foreclosure. However, there are exceptions to this rule:
- If the foreclosure of the borrower’s main residence was the result of extenuating circumstances, an exception may be granted just 1 year after foreclosure if you have since established good credit. Extenuating circumstances now include a 20% or more drop in income which is considered an “economic event.”
- Veterans also have programs that can help them get into a new home faster. Using a VA Loan, it is possible for veterans who have gone through foreclosure to buy a home just 2 years later. Veterans need to produce a Certificate of Eligibility and DD-214 to qualify. FICO scores as low as 550 may be enough to secure a VA Loan.
Buying a Home After a Short Sale
Just as with a foreclosure, it is possible to buy a home after a short sale. Millions of Americans have been through short sales in recent years. You are not alone! In fact, it’s possible to position yourself to obtain a new loan only a few months after your short sale.
Yes, that’s right: Some loan programs allow you to get into a new mortgage in as little as 12 months after a short sale!
The qualifying word there is “some.” Not everyone will qualify for a loan after a short sale, and much of it depends on the type of mortgage you are trying to obtain.
FHA guidelines are different than FNMA guidelines, and USDA and VA guidelines are different still. Use our qualification questionnaire to see if you are eligible for a loan after a short sale.
Buying A Home After A Short Sale: What Are Your Loan Options?
FHA loans after a short sale are very common. They have a shorter waiting period than a conventional loan, but longer than a VA or USDA loan. One major benefit of FHA loans is that you do not have to be a Veteran to qualify, as with VA Loans, and there are no geographic restrictions on where you buy, as with a USDA loan.
Although FHA loans require you to pay mortgage insurance upfront as well as monthly mortgage insurance, they are one of the most popular and best options for getting a mortgage after you have been through a short sale.
The waiting period for getting a FHA loan after a short sale is 3 years.
The most common piece of misinformation about conventional loans is that they require the borrower to put 20% down. This is not true. What is true is that if you put 20% down on the home, you can avoid paying mortgage insurance. Anything less than 20% requires you to pay Private Mortgage Insurance or PMI.
Just because you don’t have 20% of the home price available to put forth as a down payment doesn’t mean you can’t qualify for a conventional loan. There are a number of conventional loan programs that will allow you to buy a home with just 5% down by adding mortgage insurance on to the loan. In some cases, this can be a better financial option than getting an FHA loan.
The waiting period for a conventional loan after a short sale depends on how much money you are planning on putting down as a down payment.
- At least 20% down, 2 year waiting period
- Less than 20% down, 5 year waiting period
- Less than 10% down, up to 7 year waiting period
VA loans are a benefit reserved for Veterans of the U.S. Armed Forces. Anyone who has met the eligibility requirements is eligible for a VA loan. Secured by the Department of Veterans Affairs, VA loans do not require a down payment, offering 100% financing, and they do not require mortgage insurance. Getting into a VA loan after a short sale is common, and it is one of the easier loan programs for which to qualify. The FICO score requirement for VA loans has been lowered to 550.
The waiting period for getting a VA loan after a short sale is 2 years.
USDA loans are managed by the U.S. Department of Agriculture. Eligibility is dependent on household income but, for most people, the biggest challenge to securing a USDA loan is the geographic restrictions. Homes must be purchased in an eligible rural area as defined by the USDA.
The waiting period for getting a USDA loan after a short sale is 2 years.
Jumbo loans are tougher to qualify for after a short sale due to the higher loan amounts. Don’t let that discourage you, though. Jumbo loans are feasible if you have a good down payment; prepare to put between 20-30% down.
There is a new program available for Jumbo loans after a foreclosure or short sale. The details include:
- No specific waiting period required. Loans are approved on a case-by-case basis.
- 10% down with 20% pledged assets or cross-collateralization.
- 30% down without pledged assets or cross-collateralization.
- 680 Credit Score minimum.
- $350,000 Minimum Loan amount.
- $5,000,000 Maximum Loan amount.
- Interest only option available (Requires 40% down).
- Asset depletion option available (Stated income / Verified assets).
- Loans are allowed for:
- Primary residence
- Second homes
- Investment properties
- Program is available in select States: CA, AZ, NV, FL, TX, WA, OR, ID, CO, WI, MD, VA, TN, IL, MO, HI.
- Available as: 5 year fixed, 7 year fixed, 10 year fixed rate loans.
Do You Have Questions About Buying A Home After A Short Sale Or Foreclosure? Contact Us!
Do you still have questions about buying a home again after a short sale or foreclosure? Contact AfterForeclosure.com for help! Remember that guidelines are constantly being updated, so we might have new information that may not have made its way to the web yet.
Don’t be discouraged by a past foreclosure or short sale – you can own a home again! Contact us at (888) 634-4260 or email firstname.lastname@example.org.