Foreclosure And Short Sale Waiting Periods Before Buying A Home Again

Okay. The hurt is over.  You’ve moved on to a new home after losing your home to foreclosure or a shortsale.   But now your situation has improved and you’re now thinking about owning a home again in the future but how long will the credit world hold your traumatic event against you?  Well there’s several answers depending on the type of event that caused the loss.  Conventional and FHA ers have different answers and waiting periods .

Let’s start with conventional.   In regards to to foreclosure and the home was given back to the bank with no owner participation, the waiting period before you can obtain a conventional loan is 7 years from the date the foreclosure is completed and transferred back to the bank if they had NO extenuating circumstances.  BUT it’s 3 years from the date of forclosure was completed and transferred back to the bank with acceptable extenuating circumstances AND a 10% down payment.  These rules are for primary home purchase and rate/term refinances only.  Non-owner and second homes not allowed.

FHA is a bit more forgiving.  On a foreclosure where the home was given back to the bank and no owner participation, it’s 3 years from the date the foreclosure was completed and transferred back to the bank and less than 2 years, but not less than 12 months from the date of the foreclosure completed and transferred back to the bank if the result of acceptable extenuating circumstances.

A short sale is looked at differently by FHA and Conventional as well and how long a borrower must wait before applying for a home loan.  Let’s start with Conventional.  If the home sold but the sales price didn’t cover the amount owed, it’s 7 years from the date the sale closed and transferred to the new owner or transferred back to the bank when you have 10% or less of a down payment for your new home purchase.  It’s 4 years from the date the sale closed and transferred to the new owner or transferred back to the bank with a 10% -19% down payment for the new home, and 2 years if you have a 20% down payment.  If you have acceptable extenuating circumstances that caused the short sale, than you may wait 2 years from the date the sale closed and transferred to the new owner or transferred back to the bank AND having at least a 10% down payment for the new home.

FHA again is much more forgiving on a short sale when compared to Conventional.  It’s 3 years from the date the sale closed and transferred to the new owner and no waiting period if the borrower had no late payments on any mortgages and consumer debts within the 12 month period preceding the short sale AND they are not taking advantage of declining market conditions.

Now what is an extenuating circumstance you may ask?  That is up to lender interepretation.  Typically it may be a job transfer, not a job loss.  It may also be a natural disaster with your home such as a fire or flood.  Anything other than that is really up to the lender as to what they call an extenuating circumstance.

In regards to deed in lieu of foreclosure waiting periods, Conventional rules are the same as their short sale guidelines as mentioned above, and for FHA deed in lieu of foreclosure waiting periods are the same as their foreclsoure guidelines as mentioned above.

I will cover bankruptcy waiting periods for FHA and Conventional loans in a future article.

These guidelines are applicable as of June of 2011 and may change in the future.  If there is one thing we can depend on in this real estate lending environment, it’s that nothing stays the same for long!

Now these rules are as of 2011, and they may change and lenders may even add their own overlays (additional rules) to the above rules, so make sure and ask what their rules are.

If you have a question in regards to this article of anything else pertaining to the California home loan process, please click here and let me know!

Best

KW

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