Updated: March 20, 2017
In the last decade, bankruptcies, short sales, foreclosures or deeds in lieu of foreclosure have sky-rocketed, prompting the question: How soon can someone who has experienced a bankruptcy, short sale, foreclosure or deed-in-lieu qualify for a new home loan? The answer depends on how the home was lost, what kind of loan was defaulted upon and what kind of loan are you now trying to qualify for. The general guidelines for re-qualification are summarized below for the most common loan types. You might be closer to buying a home in Austin than you think.
2012 FHA Guidelines
Bankruptcy Chapter 7 – You may apply for an FHA insured loan after your bankruptcy has been discharged for TWO (2) years with a Chapter 7 Bankruptcy.
Bankruptcy Chapter 13 – You may apply for an FHA insured loan after your bankruptcy has been discharged for ONE (1) year with a Chapter 13 Bankruptcy.
Foreclosure – You may apply for an FHA insured loan THREE (3) years after the sale/deed transfer date.
Short Sale / Deed in Lieu of Foreclosure – You may apply for an FHA insured loan THREE (3) years after the sale date of your foreclosure. FHA treats a short sale the same as a foreclosure for now.
Credit must be re-established with a minimum 640 credit score.
2012 VA Guidelines
Bankruptcy Chapter 7 – You may apply for a VA guaranteed loan TWO (2) years after a Chapter 7 Bankruptcy.
Bankruptcy Chapter 13 – If you’ve finished making all payments satisfactorily, the lender may conclude that you have reestablished satisfactory credit.
If you have satisfactorily history of at least 12 months of on time/in full mortgage payments and the Trustee or the Bankruptcy Judge approves of the new credit, the lender may give favorable consideration.
Foreclosure – You may apply for a VA guaranteed loan TWO (2) years after a foreclosure.
Short Sale / Deed in Lieu of Foreclosure – You may apply for a VA guaranteed loan TWO (2) years after a short sale, unless it was a VA loan then restrictions apply.
Credit must be re-established with a minimum 620 credit score.
2012 USDA Guidelines
Bankruptcy – You may apply for a USDA rural loan THREE (3) years after the discharge of a Chapter 7 or 13 Bankruptcy
Foreclosure – You may apply for a USDA rural loan THREE (3) years after a foreclosure.
Short Sale / Deed in Lieu of Foreclosure – If you had big issues, the deed in lieu of foreclosure will be viewed as a foreclosure and you would want to wait no less than 3 years if the score is under 640. Over 640 the underwriter will make the call but typically not less than one year.
Although I have not personally processed a USDA with a short sale under 3 years, I have heard of instances when it is possible to buy again with re-established credit in as little as 18 months. In some cases there is not a waiting period.
If the credit was perfect and they had to move because of an involuntary relocation or something and had no choice but to ask for a deed in lieu of foreclosure you would be ok.
2012 Conventional (Fannie Mae) Guidelines
Bankruptcy – You may apply for a conventional, Fannie Mae loan after your bankruptcy has been discharged for FOUR (4) years.
Foreclosure – You may apply for a conventional, Fannie Mae loan SEVEN (7) years after the sale date of your foreclosure. Additional qualifying requirements may apply.
Short Sale / Deed in Lieu of Foreclosure – Currently treated the same as a foreclosure with a waiting time of SEVEN (7) years before you can buy again using a Fannie Mae conventional home loan.
TWO (2) Years up to Maximum 80% Loan to Value | 20% Down Payment
FOUR (4) Years up to Maximum 90% Loan to Value | 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.
SEVEN (7) Years above 90% Loan to Value | with less than 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.
Credit must be re-established with a minimum 680 credit score.
Fannie Mae has reduced waiting periods in cases of extenuating circumstances – The death of a primary wage earner seems to be the only one I have been able to identify up to this point.
Preparing to Buy After Bankruptcy, Short Sale, Foreclosure or Deed-in-Lieu
You should begin looking at your credit at least six (6) months before you are ready to begin your home search. Quite often there are things left over on your credit report that can delay your ability to qualify. With a little advanced planning and good advice, you can get your credit score up to par, qualify for financing and buy again in one of America’s most desirable places to live and one of its hottest employment markets.
Advise Your Mortgage Broker of Any Past Credit Issues
Remember, the mortgage qualification rules can change without notice. Advise your Mortgage Broker upfront about your past misfortune to determine whether the current rules allow you to qualify again.
Ready to Consider Buying a Home After Foreclosure?
Please understand I am not offering legal advice; I am not an attorney. Always check with an attorney for legal advice and counsel. As a licensed real estate broker, I specialize in situations that help people get back into an ownership position. Check out our Austin Home Buyer Representation Program to learn how we’re different from the average Realtor. Then, call us at (512) 827-8323 or email us at info@11OaksRealty.com to schedule a free, no obligation consultation.
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