How long after a Short Sale before I can buy again?

14 Jan

Home Buyers

How long after a short sale will we need to wait until we can buy again?

This is a complicated question.

The main reason for that is for all the waiting periods I have seen quoted by Fannie Mae (they provide the lending guidelines for conventional loans) and FHA (they provide the lending guidelines for FHA loans) they do allow for exceptions that could reduce the waiting period if the borrower can document extenuating circumstances.  I will go into what would count as an extenuating circumstance in a little more detail at the end of this post….

Here are the waiting periods as established by Fannie Mae and FHA:

For Conventional Loans:

  • After a Foreclosure –
    • Need to wait 7 years, or
    • 3 years if you can document extenuating circumstances
  • Short Sale or Deed-in-lieu –
    • Between 2-7 years with varying minimum down payment amounts between 80%-5%, or
    • 2 years if you can prove extenuating circumstances

The following is a direct quote from the Fannie Mae guidelines about extenuating circumstances:

Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).

The lender must obtain a letter from the borrower explaining the relevance of the documentation. The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable option other than to default on their financial obligations.

For FHA Loans

  • After a Foreclosure or Deed-in-Lieu
    • 3 Year Waiting Period, exceptions may be granted for extenuating circumstances outside of the borrowers control
  • After a Short Sale
    • For Borrowers with no late payments of any kind for the previous 12 months at the time of the short sale and who had a valid hardship…. THERE IS NO WAITING PERIOD
    • For borrowers in default at the time of the short sale there is a 3 year waiting period, however exceptions can be made for extenuating circumstances*

*Lenders may make exceptions to this rule for borrowers in default on their mortgage at the time of the short sale if

  • The default was due to circumstances beyond the borrower’s control  (such as death of primary wage earner, long term un-insured illness, etc.)
  • The review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower’s control that caused the default

I hope this helps clear up some of the confusion when it comes to figuring out how long you will need to wait after your short sale or foreclosure until you can buy again.  If you need help figuring out if your extenuating circumstances will allow a lender to make exception enabling you to buy more quickly after either a short sale, deed in lie, or foreclosure give me a call today 916.585.3636.

Trackbacks and Pingbacks

  1. 5 Reasons to Short Sale NOW Instead of Waiting » Stop My Sacramento Foreclosure Blog - February 3, 2011

    […] When you choose to do a short sale versus just walking away and letting your home foreclose you can be back in the housing market by as much as 5 years earlier.  To read a more in depth post about just how much sooner head over HERE. […]

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