We receive TONS of calls regarding the rules surrounding bankruptcy/foreclosure and short sales (also known as “Deed in Lieu of Foreclosure). I know the following is a little detailed, but we wanted to offer you a concise and detailed summary of the rules. Hope this helps.
Conventional:
Foreclosure: (Home was given back to the bank – No owner participation)
Wait 7 years if they had NO extenuating circumstances, as measured from completion date of foreclosure
Wait 3 years if they had extenuating circumstances* AND 10% Down Payment. Primary home purchase and limited cash out refi. No non-owner or second homes purchase or refi allowed.
Short Sale: (Home was sold but price couldn’t cover the amount owed) Also known as a Deed in Lieu of Foreclosure
Wait 2 years with 20% Down Payment, OR wait 4 years with 10% Down Payment, OR wait 7 years for less than 10% Down Payment.
Potentially can wait 2 years with extenuating circumstance* and 10% Down Payment
Bankruptcy 7: (Client doesn’t pay back any of the debts owing)
Wait 4 years
Potentially wait 2 years with extenuating circumstances
Bankruptcy 13: (Client pays back all the debts owing on a monthly scheduled payment plan)
If discharged (paid all the debts in full) it’s only 2 year wait, if dismissed (not completed the pay back of all debts) then wait 4 years before purchase of new home.
FHA:
Foreclosure: (Home was given back to the bank – No owner participation)
Wait 3 years
Short Sale: (Home was sold but price couldn’t cover the amount owed) Also known as a Deed in Lieu of Foreclosure
If buyer has had no mortgage late payment leading up to short sale or no other late payments on revolving/car/installment debts leading up to the short sale AND they are did not take advantage of a declining value market, they can be approved right away. Other wise, they have to wait 3 years OR have extenuating circumstance to purchase before 3 years.
Bankruptcy 7: Wait 2 years with logical reason for Bankruptcy and have reestablished credit
Bankruptcy 13: Need to show they have 12 month history of bankruptcy payments on time, qualify with Bankruptcy payments in debt to income ratio AND the Bankruptcy judge must give permission to purchase a new home in writing.
VA:
Foreclosure: (Home was given back to the bank – No owner participation)
Wait 2 years
Short Sale: (Home was sold but price couldn’t cover the amount owed) Also known as a Deed in Lieu of Foreclosure
If buyer has had no mortgage late payment leading up to short sale or no other late payments on revolving/car/installment debts leading up to the short sale AND they are did not take advantage of a declining value market, they can be approved right away. Other wise, they have to wait 3 years OR have extenuating circumstance* to purchase before 3 years.
Bankruptcy 7: 2 years with logical reason for bankruptcy and have reestablished credit
Bankruptcy 13: Need to show they have 12 month history of bankruptcy payments on time, qualify with Bankruptcy payments in debt to income ratio AND the Bankruptcy judge must give permission to purchase a new home in writing.
*Extenuating Circumstances: The lender may grant an exception to the waiting period if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure. Divorce is not considered an extenuating circumstance. However, the situation in which a borrower whose loan was current at the time of a divorce in which the ex-spouse received the property and the loan was later foreclosed qualifies as an exception.
Note: The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.
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