By kathy.argento@nafinc.com
March 24, 2015
Buying a home after a foreclosure may be easier than you think. During the past 8 years, many thousands of California homeowners fell victim to foreclosure. Bad things happen to good people all the time. In the aftermath of one of the worst real estate crashes in recent history, foreclosure, short sale, or bankruptcy are a reality that hit many California households. Temporary Setback? There is a common misunderstand out there that if you have a foreclosure, you are unable to buy a home for at least 10 years. Well, it is common knowledge that negative items can stay on your credit report for 10 years, but that doesn’t mean that those negative items will prevent you from rebuilding your credit, or your ability to buy a home after foreclosure. You can buy a home after a foreclosure by simply recovering gracefully, re-establish your good credit payment history, and abide by the waiting period required for the loan you are trying to apply for to buy your new home. Waiting Periods to Buying After Foreclosure: The amount of time you have to wait before being eligible to buy a home after foreclosure depends completely on the type of home loan you are trying to qualify for. FHA Insured Home Loan: You are eligible for FHA financing 3 years from the date that your name was removed from title for the home that you lost to foreclosure. If the defaulted loan on the foreclosed home was a FHA insurance mortgage, your 3 year waiting period will begin from the day that the FHA mortgage insurance claim is paid. VA Guarantee Home Loan: You are eligible for VA financing in 2 years from the date that your name was removed from title. If the defaulted loan on the foreclosed home was a VA loan, it may affect your eligibility. Your Certificate of Eligibility will tell you if you have any of your benefit available. USDA Rural Development Home Loan: Similar to FHA, you would be eligible to purchase again in only 3 years from a foreclosure if you are buying in a USDA eligible area. Conventional Home Loan: This is the big daddy of the waiting periods, preventing you from buying after a foreclosure for 7 years from the date your name comes off title for the home you lost to foreclosure. HELOC: Qualifying for a Home Equity Line of Credit after a foreclosure will usually require a 5 year wait from most banks before applying for a 80/10/10 purchase loan. If there was a Bankruptcy, you would be unable to use a HELOC for 8 years from the discharge. Jumbo Home Loan: Qualifying for Jumbo financing after a foreclosure requires a 7 year waiting period form the date your name was removed from title on the defaulted mortgage. Shorter Waiting Times with Extenuating Circumstances: All but Jumbo financing allow for shorter waiting periods if your foreclosure was the result of an extenuating circumstance. An extenuating circumstances exception is defined as a one time event that was completely outside of the control of the homeowner. In my experience, extenuating circumstance exceptions are usually limited to permanent disability, or death of a primary wage earner. The documentation required to prove an extenuating circumstance is extensive. Bankruptcy: It is not uncommon that the first stages of experiencing your financial hardship was the filing of a Chapter 7 or 13 Bankruptcy. If you filed for bankruptcy, and included your mortgage debt in the BK, it may shorten your waiting period in some cases. If you are trying to buy using FHA or VA financing, your waiting periods are unaffected by the discharge date of your bankruptcy. In most cases, the waiting period for the BK is over before the waiting period for the foreclosure. If you are trying to buy using Conventional, or USDA financing, then you could benefit from new guidelines that went into effect in August 2014 for conventional, and December 2014 for USDA. The changes to these guidelines state that if you are buying using a Fannie Mae, or USDA loan, and the mortgage debt was included, and discharged in a Bankruptcy, that you can go by the BK waiting period only, and you do not have to start the clock over again from the foreclosure date. If trying to buy using a Fannie Mae Conventional loan, you can buy 4 years from the discharge date of the Bankruptcy date, as long as the foreclosure took place after the discharge of the BK. If buying using USDA financing, the waiting period is 3 years from the BK, without starting the clock over again if a foreclosure took place on a mortgage that was included in the Bankruptcy discharge. Working with a Creative Lender As a direct lender in California, we pride ourselves in being on the cutting edge of creative financing solutions. When I say “creative”, I mean that we know our guidelines, and we know how to fight through the hurdles of complicated situations that big bank employees have neither the experience or patience to figure out. If you feel that you may be eligible to buy a home after bankruptcy, foreclosure, short sale or a deed in lieu of foreclosure and you’re not sure where to start, you can ask questions or simply call or text me at 949-836-0650 any time.