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Buying a Home After Short Sale or Foreclosure

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Buying a Home After Short Sale or Foreclosure

Buying another home after short saleAs a Realtor who has been heavily involved closing Massachusetts short sales over the last five years, one of the questions that I get asked quite often from home sellers is how long will it take before I will be able to buy a home again.

The answer to this question does not have any clear cut and dry answer. There are quite a few variables involved when trying to figure out when someone will be able to purchase a home after a foreclosure or short sale.

Going through either a short sale or a foreclosure has the potential to seriously impact ones credit.  Government entities Fannie Mae, Freddie Mac and FHA do not directly loan money to individuals but are the governing body that work with lenders to guarantee loans and free up money to provide mortgages.

Banks typically have the authority to lend to whoever they want but will generally follow the guidelines set forth by these entities. There are some lenders of course that will take greater risks with some borrowers than others.

Below are the general guidelines that FHA, Fannie Mae and Freddie Mac follow when considering a loan after a short sale or foreclosure:

Short sale with FHA Loan

  • Can purchase right away with no mortgage default
  • 3 year wait if in default at the closing
  • Reduced wait if the borrower has re-established good credit and can show extenuating circumstances

Short Sale With Fannie Mae Loan

  • 2 year wait if the borrower puts 20 % down
  • 4 year wait if the borrower puts between 10% to 20% down
  • 7 year wait if the borrower puts less than 10% down
  • 2 year wait if the borrower can show extenuating circumstances and puts more than 10% down

Short Sale with Freddie Mac Loan

  • 4 year wait before being able to get a loan
  • 2 year wait if the borrower can show extenuating circumstances

Foreclosure with an FHA Loan

  • 3 year wait before being able to get a loan
  • Reduced wait if the borrower can show extenuating circumstances and re-establishes good credit

Foreclosure with a Fannie Mae Loan

  • 7 year wait from the completed foreclosure sale date
  • 3 year wait if the borrower can show extenuating circumstances. Additional underwriting requirements apply for 4 years after a 3 year waiting period.
  • 7 year wait for a 2nd home, cash out re-financing, or an investment property

Foreclosure with a Freddie Mac Loan

  • 5 year wait from the completed foreclosure sale date
  • 3 year wait if the borrower can show extenuating circumstances

** As a side note a deed in lieu of foreclosure follows the same guidelines as FHA’s foreclosure policy, the same as Fannie Mae and Freddie Macs short sale policy.

When analyzing the difference between completing a short sale or going through a foreclosure in regards to purchasing another property in the future it boils down to the waiting time which is more favorable in a short sale.

Credit Scoring After Short Sale and Foreclosure

Credit Score After a Short SaleThe other question that I get from folks considering a short sale is how it will impact their credit. There is a lot of misleading information that come from Realtors, as well as online forums about the impact on credit scores. On many occasions you will hear that a short sale is far better for your credit than getting foreclosed on. This is incorrect! A credit score in a short sale or a foreclosure have the potential to be about the same. Maybe marginally better in a short sale.

According to Fair Issac (My FICO) a company that provides analytic, decision making, and credit scoring services for financial service companies a credit score will go down by 40 to 110 points after being 30 days late.  Further, the scoring drop will increase to 70 to 135 points after 90 days late on a mortgage payment.

The average scoring drop in a short sale, foreclosure or deed in lieu is 85 to 160 points. You need to keep in mind that in both short sales and foreclosure it is possible that the credit score drop could be closer to 200-300 points.

Credit scoring factors vary from individual to individual. The scoring change is heavily dependent on where the credit score was before the negative event took place. Both a short sale and foreclosure are considered a loan that was not paid as agreed.

What happens to your credit score in each of these events could be different than someone else who goes through the same financial event. Unfortunately, most of the time the higher the credit score the greater the decrease from where you started.

When trying to decide whether a short sale is right for you don’t be fooled into making the decision under false hopes that your credit will not be impacted all that much. The biggest advantage in a short sale is the shortened time frame in which you will be able to purchase a home in the future.

One of the most important steps after going through either a short sale or foreclosure is to be conscious about trying to improve your credit standing. Here are some excellent tips on how to increase a credit score.

*** The above information for waiting periods before buying a home after completing a short sale and foreclosure was sourced by the Fannie Mae and Freddie Mac selling guides along with the FHA handbook.

Other short sale articles worth a peek:

If you are need to short sale your home or condo in Ashland, Bellingham, Framingham, Franklin, Grafton, Holden, Holliston, Hopedale, Hopkinton, Medway, Mendon, Millbury, Milford, Southboro, Westboro, Natick, Northboro, Northbridge, Whitinsville, Upton, Uxbridge, Shrewsbury, or Worcester get in touch! I would love to interview for the chance to represent your best interests.

I am successfully completing short sales through out the Metrowest Massachusetts and Worcester County areas. So far, knock on wood, I have a 100% success rate for short sale approval! Short sales are specialized transactions that are critical to have the right Realtor representing you. Do not make the mistake of picking an agent that does not understand how to get to the closing table on a short sale.

If you are outside of the Metrowest Massachusetts area and need to do a short sale please feel free to contact me and I would be happy to refer you to a Realtor in your location that handles short sales and knows what they are doing! I have referred short sales to other Realtors all around the country.

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About the author: The above Real Estate information on buying a home after short sale or foreclosure was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 25+ Years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

I service the following towns in Metrowest MA: Ashland, Bellingham, Blackstone, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northboro, Northbridge, Shrewsbury, Southboro, Sutton, Wayland, Westboro, Whitinsville, Worcester, Upton and Uxbridge MA.

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{ 84 comments… add one }

  • Michelle November 5, 2011, 12:48 am

    Thank you for the wealth of information. I recently purchased a book on the subject of short sales and I’m learning more from your blog. Thank you. We are just beginning the short sale process. We are current and have to move for job relocation. We were hoping to stay current until completion of the short sale but we have a FHA loan and the guidelines state that the loan must be at least 30 days delinquent at the time of closing? I have heard of people staying current. Does this only happen with conventional loans or does the lender make the decision?

  • Bill Gassett November 5, 2011, 1:48 pm

    Michelle thanks for the compliments on my short sale articles. You are correct in that FHA wants you to be delinquent as crazy as that sounds. There are some lenders that also operate this way as well. It is the crazy unpredictable nature of short sales.

  • George Amos November 6, 2011, 7:14 am

    Bill:

    Thanks for such a well organized article.

    Are the waiting periods on most of these, but particularly the FHA rules, calculated for times of offers or times of closings? That is, can I make an offer in February and close in March if my time period is up March 1?

    Thanks in advance.

  • Bill Gassett November 6, 2011, 12:32 pm

    George as a general rule they would be talking about after the closing on the short sale or foreclosure. Keep in mind, however these are not hard and fast timelines. They are ballpark figures on when you will be able to get a loan again.

  • Joe Kerulis November 14, 2011, 2:25 pm

    You mentioned in your article that the wait time to purchase again could be shortened with extenuating circumstances. What kind of circumstances would be considered?

  • Brandi November 15, 2011, 12:59 am

    I have read that Fannie will allow a home purchase after a short sale IF the seller has had no delinquencies exceeding 30 days….as it stands now I have one reported 30 day. I was delinquent to get the ball rolling for relocation. I am aware that it is 2 year waiting, but seems Fannie now states that as long as you fall within no 60,90,120+ days delinquent you can actually get approved right after a short sale. True?

  • Bill Gassett November 15, 2011, 1:52 am

    Brandi I am not aware of being able to purchase again immediately after having gone through a short sale with Fannie Mae.

  • Bill Gassett November 15, 2011, 1:55 am

    Joe an extenuating circumstance could be a loss of job.

  • Jared Leichliter November 15, 2011, 8:21 pm

    We have lenders that will allow you to purchase a home after short sale right away if you were not delinquent on the mortgage during the short sale process and the short sale didn’t have an FHA loan. We can get you an FHA mortgage after short sale in California with 3.5% down after short sale. Give us a call.

    Jared Leichliter
    888-842-4452

  • Shelia November 23, 2011, 2:46 am

    Im thinking about doing a short sale on my home, i am current on all payments and plan on being current throughout the short sale process. I have good credit and i was wondering if im current with no deliquencies will it negatively affect my credit. Also, would i qualify for a loan again within an year being im no delquient. My current lian is with FreddyMac.

  • Bill Gassett November 27, 2011, 8:42 pm

    Shelia it may effect your credit if the lender reports it to the credit agencies. It will certainly not effect you anywhere near as much if you missed mortgage payments as this is where the greatest credit hit comes from.

  • Marissa Koretski January 4, 2012, 6:56 pm

    Enjoyed your article Bill. Agents that are knowledgeable and well versed in short sales are hard to come by! I too am asked the same questions on a daily basis. While I try to be as honest and forthcoming with information as I can, each short sale is unique, even if the circumstances are similar. There are a ton of variables that come into play that can effect the outcome of your short sale. The best advice I can give any homeowner is to do your research and take the time to find a well educated agent. Many agents now days are working with third party companies to assists with the processing of their short sales, simply due to the fact that they’re time consuming and they’re able to assist more homeowners this way.

  • Alisha January 14, 2012, 7:21 pm

    Can someone help me get an answer? I’ve been trying to sell my current home for what I owe, which is $12 more than the fmv. I havent had any luck in 2 yrs.. So a realtor suggested that I do a short sale on my Fannie Mae loan. I have been pre approved for an FHA loan for a new home. I’m concerned that if I do a short sale I woould have a waiting period before I buy another home.

  • Bill Gassett January 14, 2012, 7:23 pm

    Alisha if you go through with a short sale the likelihood is strong that you would not be able to get a loan for two to three years.

  • Thetergisteam February 6, 2012, 2:01 pm

    Bill you always have very informative blogs, filled with great/valuable information. I’ll share /retweet this post with my friends and clients. Thank you.

  • Bill Gassett February 6, 2012, 2:04 pm

    Thanks Claudia I appreciate the compliments on my short sale article.

  • George February 7, 2012, 1:01 am

    Thank you for all the precise information that you put on this blog Bill!
    I just tried buying a home that is in short sale… On the same day my contract was delivered to the Realtor I was told that the house was already put in foreclosure.
    Do you know what happens after a home is put in foreclosure? Meaning does the bank try to sell the home again and if yes how long does it take before it gets put on the market? Also does the price change as from the one that was listed on the short sale? Thank you for all your help!

  • Bill Gassett February 7, 2012, 1:48 am

    Hi George if the home is not bought at foreclosure then you will typically see the home put back on the market by a Realtor. The price is often times different than what is was as a short sale. More often than not the price is less than when it was listed as a short sale.

  • Sele Fiore February 7, 2012, 2:27 am

    Hi Bill:

    I had 5 foreclosures on investment properties 3 years ago. We still own our personal residence and have re-established credit. We want to know if we can now buy a home using FHA financing. None of the properties that we lost were government loans. We tried modification and everything else so as to not have them be foreclosed upon, but it didn’t happen. The prices are so low right now and we found a property we really like and our payments would be incredibly low. I appreciate your input. Thanks.

  • Bill Gassett February 7, 2012, 11:42 am

    Sele it is possible you could get and FHA loan. You will need to check with a mortgage broker.

  • Fred Chana February 20, 2012, 1:20 am

    Hi Bill:
    I had a forclosure on an investment property about a year ago. I have never been late on my primary residence mortgage. Other than the foreclosure, my credit it good. No lates etc.
    My wife and I want to sell and upgrade our primary residence. Mortgage Brokers have told me to wait 2-3 years… any chance of me doing anything sooner? Know of any companies that would finance me given the foreclosure history?

  • Bill Gassett February 20, 2012, 12:44 pm

    Fred I do not know of any traditional lenders that would do a loan under the circumstances your describe although you may be able to get something from a private investor. I am sure the interest rate would be very high.

  • Mark July 12, 2012, 5:47 pm

    That was good information short sale information, I had to wait 2 years before lenders talked to me!

  • Linda V July 31, 2012, 1:30 pm

    Bill, I have been divorced since 2006. I kept up with payments on my loan that was sold to a service company. I Never ever could I get a loan modification. The last straw was that they (service company) paid my taxes for 2011 and part of 2010 which cost about $3500.00. I was going to pay taxes when I got my refund in early 2011. Well they paid them and then wanted to get back 9 months. My mortgage payment went up double to $1390.00. I sold my house in a short sale because I could no longer afford it. I was disgusted when asking for a loan modification. Everything I was told was that if I lost my job the lender could help. Now I have to save money up again and re-establish credit. How long should I wait? I am renting right now.

  • Bill Gassett July 31, 2012, 4:25 pm

    Linda it will typically take you 2 to 3 years before you will be able to buy a home again. You need to focus on making sure you are working towards increasing your credit score.

  • Mike E August 13, 2012, 12:32 am

    Hi Bill,
    My wife and I did a Short Sale on a home we owned two years ago and now that our credit is back over 700 we were looking to buy another home. The problem we have is we only have a 10% down payment for the homes we want to get into in our area. I know Fannie Mae lets you apply for a new home loan two years after a short sale with 20% down but I was wondering if there are any other options out there (e.g. 90/10 loan)?

  • Bill Gassett August 13, 2012, 11:23 am

    Hi Mike – You may want to try a local lender that portfolios their loans and do not sell them on the secondary market.

  • Jack October 9, 2012, 7:50 pm

    According to this article – http://practicallist.com/real-estate-short-sale Fannie Mae will finance right after 2 years. But most individuals credit rating will probably be shot, that report will go into more details about that.

  • Bill Gassett October 9, 2012, 9:08 pm

    Jack I have yet to see any Fannie Mae finance a short sale where the buyer was in default in two years. It is incorrect information.

  • Joseph S December 30, 2012, 5:41 pm

    Bill, I wanted to take a second and say that you are one of the very few real estate agents that has correct information on this topic, which shows me what type of agent you are – one that I would use! There are two major factors when determining when you can purchase again after a short sale: 1) were you current on your monthly mortgage payments all the way up to transfer of title/deed? 2. Is there a deficiency judgment reported on your credit report. The second may be an issue with a lot of lenders. Another thing I would like to point out is that if the prior foreclosed loan was an FHA mortgage, then you will have to find out when the FHA settled up. So just because it says three years out to purchase again with an FHA loan (2 yr on VA) after a foreclosure, the three years isn’t when you moved out… it is when the FHA settled up. And on a prior short sale with a VA loan, make sure the veteran finds out how much their entitlement is remaining. I bring this up because the VA took a loss on the short sale and they can/will reduce the veterans entitlement.. Again, thanks for the great info!

  • Bill Gassett December 30, 2012, 11:55 pm

    Thanks Joe for your comments/compliments on when you can purchase a home again after a short sale or foreclosure.

  • Craig Simpson January 1, 2013, 9:27 pm

    Getting a good loan officer and lender that walks you through the process really helps. They can help build a plan to start as soon as the foreclosure or short sales ends to get you going in the right direction.

  • Bill Gassett January 1, 2013, 10:18 pm

    Very true Craig! One of the things I always do with anyone looking for help is to get them in touch with my mortgage broker who I have been using for years. You can never start planning too early after going through a foreclosure or short sale.

  • Louisville Real Estate January 2, 2013, 3:35 pm

    This is a hot topic with so many folks wondering this now that most of these foreclosures are a couple years behind us. People need to be informed and know their options and know there is hope out there.. even after such an experience. Great post and all the best to you and your business in 2013

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