Almost 5 million Americans lost their homes to short sales and foreclosure over the past few years. But now that time has passed many are hoping to be able to own their own home again soon.
The biggest different between folks buying a home after a short sale, deed and lieu or foreclosures is the waiting period. But that’s also where things are changing the most now. Back in the day everyone who lost a home this way was thrown into the same bucket and had to wait seven years to become a homeowner again. But government is taking a lead role in getting people back into homeownership.
For example, FHA introduced the “Back to Work” program this summer and will now approve borrowers a year after foreclosure, short sale, deed in lieu or bankruptcy if they can show financial hardship due to employment was the reason for that foreclosure, DIL or short sale. The event has to be an “employer driven loss” which is strictly construed as loss of at least 20% of income for 6 months or more. FHA also requires the home buyer counseling class. And a minimum credit score of 620. Fannie has also recently improved its systems which used to accidentally confuse folks who short sold with those who were foreclosed. The problem with that is you have to wait longer to buy again after a foreclosure than after a short sale. Now that that’s been fixed, the average wait time for a short sale is 2 to 3 years. After a foreclosure its 4 to 7 years.
The exact wait time will depend on other factors. For example, if you short sold, but not you have a 20% down payment and a 680 credit score you will only need to wait 2 years to buy a home again. But if you only have 10% to put down, plan on waiting 3 years. And remember if the government insured your loan and had to pay a claim, you’re in the CAIVRS system and may need to pay that back before you can get a government backed loan again (thought there are some exceptions)
In addition to credit score and down payment, which a surprising number of boomerang buyers did not need with zero down loans and are now surprised to learn they do, the other biggie is debt to income ration DTI. The main thing is to give yourself plenty of time to get the score up, save the down payment and whittle down your expenses while you try to generate some extra income and get that DTI to where it needs to be – about 43% to be safe.
Even with tougher rules, lenders will be looking to make up for lost refinance business. Just be careful to take the time and get the best loan you can and, of course, to make sure you understand it. Millions of folks are qualified to buyer again and don’t even know it!
