More than 4 million homes have been lost to foreclosure since 2005 and many of those former home owners are now ready to purchase again.
Some banks have guidelines that prevent them from issuing loans to people with a foreclosure or short sale in their credit history in some cases for as much as seven years. However, every lender may have their own guidelines so buyers need to contact their lenders directly for details.
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Aside from the the waiting period to qualify for a loan after a short sale or a foreclosure, former home owners will need to repair their credit scores so they’ll have a better chance at qualifying for financing again in the future at a good interest rate.
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The good news is some former home owners, particularly those who foreclosed or did a short sale due to extenuating circumstances like a job loss or illness, are finding the wait may not be as long as they were once told.
FHA, Fannie Mae and Freddie Mac have a shorter waiting period for borrowers who can justify that the circumstance for the foreclosure or bankruptcy occurred because of an illness or job loss — or other “extenuating circumstance” — that may help reduce their wait to qualify for lender financing.
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The wait-time for lender financing for former home owners with foreclosures or short sales varies among lenders and government entities..
Fannie Mae and Freddie Mac loan wait due to extenuating circumstances, like job loss:
- 3 year waiting period following a foreclosure
- 2 year wait following a short sale, deed in lieu, or discharge or dismissal of bankruptcy
Fannie Mae and Freddie Mac loan wait with NO extenuating circumstances:
- 7 years following a foreclosure
- 4 years after bankruptcy
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Loans insured by FHA, the Federal Housing Administration:
- 3 years after a foreclosure
- 2 years after a bankruptcy is discharged
- 3 years after a short sale with NO extenuating circumstances
- may be WAIVED after a short sale with extenuating circumstances
Borrowers have to wait three years after short sale and foreclosure to secure a FHA loan UNLESS they can prove the short sale was due to a job loss or other extenuating circumstances and then the wait-time can be waived.
Also, for borrowers who can come up with a higher down payment on their next home purchase, they may also not have as long to wait. For example, Fannie Mae will reduce the wait from seven years to two years for borrowers who come with a down payment of 20 percent or more.
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NOTE: Vivianne Rutkowski is a REALTOR, not a Lender. For financing information and advice always contact your LENDER and for a legal advice always contact your lawyer.
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SOURCE: Associated Press; REALTOR Magazine
