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2018 Mortgage Waiting Periods for Buyers With Prior Short Sale, Foreclosure or BK Saturday, April 21st, 2018

It is hard to believe that it has been a decade since the housing crash in 2008. It is another year that has passed for buyers to recover from a prior foreclosure, short sale or BK. We have been seeing lots of buyers who suffered a financial hardship in the past get back into the market recently to purchase a home again. Here are the current 2018 mortgage waiting periods and loopholes available for buyers who had a prior Foreclosure, Short Sale or Bankruptcy.

Buying a Home Again After a Financial Hardship

More than 9 out of 10 mortgages are either funded by Fannie Mae/Freddie Mac, the FHA or VA!

Therefore if a buyer is looking to purchase a home and needs financing, it is more than likely they will be using one of these 3 financing options.

If a buyer does not fit these guidelines, there are a lot of new financing products that are available in the market again to help fit a buyers needs. We have options where a buyer can finance a home with less than one month out of a BK, foreclosure or short sale.

Here are the current 2018 mortgage waiting periods when a buyer is looking to repurchase a home after either a short sale, foreclosure or bankruptcy.

1. When Can I Repurchase Again After a Foreclosure?

Here are the current waiting periods when a buyer can repurchase again after a Foreclosure and they are trying to obtain either Conventional, FHA or VA financing.

Conventional. It is 7 years before a buyer can repurchase again using conventional financing.

Loophole. There is a loophole that not many are aware of, see below. If you included the foreclosure in a bankruptcy, you can qualify after 4 years instead of 7 years. Contact me for more details on how to qualify under this new rule.

“For conventional financing, the bankruptcy guidelines have been updated to indicate that if a mortgage debt has been discharged through bankruptcy, even if a foreclosure action is subsequently completed to reclaim the property in satisfaction of the debt, the borrower is held to the bankruptcy waiting periods and not the foreclosure waiting period.

This means a buyer can now qualify for conventional financing after 4 years from the bankruptcy date, instead of the foreclosure date of 7 years”.

FHA. It is 3 years before a buyer can repurchase again using FHA financing. Or, see below for how a FHA buyer can qualify again after just 1 year if they experienced an economic event.

VA. It is only 2 years before a buyer can repurchase again using VA financing.

2. When Can I Repurchase Again After a Short sale?

Here are the current waiting periods when a buyer can repurchase again after a Short Sale and they are trying to obtain either Conventional, FHA or VA financing.

Conventional. It is 4 years before a buyer can repurchase again using Conventional financing.

Loophole. If you included a short sale in a bankruptcy chapter 13, you can qualify after 2 years instead of 4 years. We have been helping buyers recently qualify under this rule. Contact me for more details on how to qualify under this new rule.“For conventional financing, the bankruptcy guidelines have been updated to indicate that if a mortgage debt has been discharged through bankruptcy, even if a short sale action is subsequently completed on the property, the borrower is held to the bankruptcy waiting periods and not the short sale waiting period. This means a buyer can now qualify for conventional financing after 2 years from the bankruptcy date, instead of the short sale date of 4 years”.

FHA. It is 3 years before a buyer can repurchase again using FHA financing. But here are 2 different ways to qualify less than 3 years.

*Tip #1: The FHA has a loophole that not many people know about, if the FHA buyer did not have any late payments before their short sale, they are allowed to automatically qualify again for FHA financing.

Tip #2. The FHA reduced the time line that buyers must wait after a bankruptcy, foreclosure or short sale before qualifying for an FHA-backed mortgage, if a buyer experienced an “economic event” whereby their household income fell by 20% or more for a period of at least six months.

The period had previously been two years following a bankruptcy, and three years following a foreclosure or short sale. The FHA reduced the waiting period to ONE YEAR. 

For additional information on how to qualify under this rule, I wrote an article on this subject for the San Diego Union Tribune newspaper, see HERE

VA. It is only 2 years before a buyer can repurchase again using VA financing.

3. When Can I Repurchase Again After Bankruptcy?

Here are the current waiting periods when a buyer can repurchase again after a Bankruptcy and they are trying to obtain either Conventional, FHA or VA financing.

Conventional. For a chapter 7 Bankruptcy it is 4 years and 2 years for a chapter 13 bankruptcy, before a buyer can repurchase again using Conventional financing.

FHA. For a chapter 7 Bankruptcy it is 2 years and 1 year for a chapter 13, before a buyer can repurchase again using FHA financing. Or, see above for how a buyer can qualify again after just 1 year if they experienced an economic event.

VA. For a chapter 7 Bankruptcy it is 2 years, and 1 year for a chapter 13 bankruptcy, before a buyer can repurchase again using VA financing.

4. What if a buyer does not fit the waiting periods above? New Financing programs available

There are new mortgage options available for buyers who do not fit the more traditional mortgage options above.

Portfolio lenders are stepping in to provide mortgage options for buyers who cannot qualify for conventional, FHA and VA financing, and with terms much better than private financing.

We have lenders who will now provide financing for buyers less than 1 month out of a foreclosure, short sale or BK for example. A larger down payment will be required, and rates will be higher than traditional loans.

We also have several different stated programs for self employed and W2 buyers who cannot verify their income.

We also have bank statement programs available for borrowers, whereby we can use their monthly deposits to qualify. This is a great option for self employer borrowers who do not show all their income on their taxes.

Contact me with any scenarios you have, we typically can find a solution to most borrower situations.

Helping Buyers Rebuild Their Credit

It is also very important that buyers start to re-establish their credit again since their hardship.

For example, even though the required waiting period of say 2 or 3 years may have passed, it is also important that buyers have the required credit scores to qualify again for financing. For example, the FHA and VA only require a 580 credit score to repurchase a home again. 

The first step is for a buyer to get a copy of their credit report to verify if their financial hardship or discharge is reporting correctly and to also see what their scores are.

Then the next step is for buyers to start rebuilding credit scores. I have a section on my website  which is devoted to helping buyers and consumers  rebuild and improve their scores, see HERE, so they are able to score the best rates and financing terms.

Tips for Buyers Looking to Purchase Again

There are many buyers who suffered a financial hardship in the recent past who are already back in the market again to purchase a home.

As the VA only requires 2 years from a short sale or a foreclosure, and the FHA only 1 year in some cases, there are a lot more buyers who are eligible to repurchase again but probably just don’t know they can.

A lot of buyers I talk to who suffered a financial hardship in the past, are genuinely surprised when they realize that the FHA or VA for example allows them to purchase again after just 2-3 years!

Tip for real estate agents: A good idea is to check the dates with any clients, friends or family you helped short sale in the past, or anyone you know who had a foreclosure, and verify how much time has elapsed since their hardship. Now you can let them know when they can repurchase again using these waiting periods above.

Also let them know too how important it is that they rebuild their credit, and that they should contact you if they need credit tips on how to rebuild their credit.

If you have any questions about any of these mortgage waiting periods, or you would like to get approved for financing, please call me at 858-442-2686, or you can also email me at mdeery@citywidefinancialcorp.com .

P.S. If you would like to be updated faster on important industry news or any new loan programs that come out, please join my Facebook page .