How Long You Have To Wait To Buy Another Home After A Short Sale Foreclosure Or Bankruptcy

How Long You Have To Wait To Buy Another Home After A Short Sale Foreclosure Or Bankruptcy


Many times I have potential buyers log onto my website or contact me directly wondering how long they have to wait to be able to be approved again for a home-loan.  There are so many conflicting facts, that I thought we should shed some light on the subject.  Welcome guest-blogger and one of "D-Magazine's Best" John Giles from North American Lending to tell you more... 

I am asked constantly by realtors, and people who want to start looking for a home: “How long after a bankruptcy/short sale do I have to wait before I can buy a new home”?In the bust of 2007, people declared Bankruptcy, were foreclosed upon, and had to sell the homes via short sale.  After 7 long years, most of them are ready to enter into the real estate market again.There are different timeframes for different types of Derogatory Events.  For example, a Foreclosure will be analyzed differently on an FHA loan than a Conventional Loan, and short sales will be analyzed differently than a bankruptcy. 

Ignoring the bankruptcy for a moment, let’s focus on just the short sale impact on your credit rating and ability to purchase a new home.  The very short answer to “can I buy” is “yes”.   It is well documented, that one must wait at least 4 years. If one can bring a larger than normal down payment, and take on a higher interest rate, FHA will source a loan after 2 years to buy another house after a short sale.
Now, you can go find a willing private mortgage lending company or an independent bank, but you will most likely be required to pay a higher interest rate than under normal circumstances, and put down a much larger down payment.  Problem is, that higher interest rate is likely what caused the original default in the first place.Short sale sellers are unfortunately viewed as much higher risks that normal because of the late payment situation.

Apparently, the best rates would come from government agencies and government sponsored loans, like those from the FHA, Freddie Mac, Fannie Mae, and Ginnie Mae. Allegedly even the VA and USDA can be loan sources. A site with good information on waiting periods and such is:
http://ncfhaexpert.com/fha/fha-and-va-mortgage-loan-guidelines-waiting-periodsOddly enough, the bankruptcy part of the question does seem to be the hindrance. Normally, it would be three years following the lifting of a bankruptcy decision before a person could obtain a mortgage loan for a home purchase; however, because of the negative credit ratings and conditions of the bankruptcy, and all of the late payments that are usually on that credit report, be prepared for it to be seven years.   That is how long it takes to clear the credit reporting agencies, and raise a FICO score to an approvable number.  If a foreclosure occurred as a part of the bankruptcy, that just makes it credit report and FICO score that much worse. The mix of bankruptcy and foreclosure is the worst combination.

An informative site on foreclosure is:
http://www.foreclosurefish.com/blog/index.php?id=362

Here is a s table to refer to when dealing with the most common Derogatory Events:Derogatory EventFHAConventionalVABK Ch 72 years4 years2 yearsBK Ch 131 year2 or 4 years1 yearForeclosure3 years7 years2 yearsDeed in Lieu of FCShort Sale3 years2 years – 80% LTV4 years – 90% LTV2 years

John GilesRMLO# 346751
214-828-7059 Cell
972-759-5216 Office
214-722-0055 Fax 
www.usamortgagelending.com

jgiles@nalending.com
2901 Dallas Parkway, Suite 120
Plano, TX  75093
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Dated: February 10th 2014
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