Homeowners are breathing a little easier today. Point your ear out your front door and listen: you may hear a sigh of relief! Prices are rising – like crazy in some places – and fewer homeowners are upside down on their mortgages. Today’s real estate market is no longer about ‘how much am I losing?’ but rather about ‘how much equity am I building?’ Almost anyone who bought a home in the past year is probably grinning from ear to ear!
But what about those who didn’t make it through the downturn? What about those who lost their equity, found themselves upside down and, suddenly, needing to sell? They pretty much had four options:
- Move and let the home go to Foreclosure
- Negotiate a Short Sale with the lender
- Forget about selling and rent the house
- Sell and write a check at closing to the lender for the shortfall
Thankfully, not too many people opted for that last option – though it did happen in situations where the shortfall was small and the need to sell great. And those who successfully rented their property are probably enjoying a nice increase in value now. People who chose Short Sale or went to Foreclosure, however, have the same question: how long before I can buy again?
First, understand that the answer is a moving target: it has shifted over time and probably will continue to shift. There are also no hard and fast answers as different lenders have different policies and some lenders will bend a bit if interest rates and discount points are high enough. However, today, the following is typical:
To get a Conventional Loan after a Short Sale:
- Two-year wait with a 20 percent down payment
- Four-year wait with a 10 percent down payment
- Seven-year wait with less than 10 percent down payment
- Conventional lenders usually look for a FICO score in the 680 range after a Short Sale
To get an FHA Loan after a Short Sale:
- Three-year waiting period from the Short Sale closing date
- Home buyers can get a mortgage with as little as 3.5 percent down
Eligible Veterans can get a VA Loan after a Short Sale:
- Two -year wait from the Short Sale closing date
- Can still get in with no money down
There is one snafu that seems to be occurring regularly as former Short Sale-rs apply for new mortgages. Sometimes the Short Sale lender reports the sale incorrectly to the credit bureaus as a Foreclosure. This can be a big problem as most borrowers with a Foreclosure on their credit reports must wait seven years before becoming eligible for Conventional Mortgages.
If your last sale was a Short Sale, it is important to keep all of your paperwork from that transaction handy in case you have to prove that it wasn’t a Foreclosure. It’s also not a bad idea to access your credit report before you begin the buying process to see how the Short Sale was reported.
August 19 Update: FHA just announced new guidelines that will enable some borrowers with a short sale on their credit history to get back into the market in as little as 12 months. The new rule requires documentation of an economic event precipitating the short sale – something like loss of a job – and demonstration of significant recovery from the event, i.e. 12 months of clean credit history. Those with a foreclosure (instead of a short sale) must wait 3 years before obtaining and FHA insured mortgage.