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Is there credit after foreclosure or short sale?
People do not buy a home because its features fit the logical needs of their family. They make their selection based on emotional feelings the house gives them. They can visualize the family eating in the dining room… They love the kitchen… They feel their children will have success in their new school and make new friends in the neighborhood. These very same feelings make losing the home to foreclosure so difficult. Foreclosure means failure and there is a great deal of shame and fear involved in the whole process.
One thing that homeowners fear is never being able to buy a new home again. You may be surprised to learn that a buyer can qualify for a new home loan in as little as two years after a short sale. Listed below are the current timelines used for qualifying for a home loan after financial hardship including foreclosure, short sale or bankruptcy.
Conventional loans and USDA 100% financing
Foreclosure- 5 years due to financial mismanagement
4 years due to extenuating circumstances
Short sale- 3 years due to financial mismanagement
2 years due to extenuating circumstances
Additional restrictions and guidelines apply, such as full documentation, which means the buyer must provide the lender tax returns to review and provide verifiable income. Minimal credit scores and a down payments are required on all loans except USDA 100 percent financing. You may be surprised that none of those qualifiers were required with some loans. Now you know why we are in such a financial mess!
FHA Loans - Buyers can qualify 3 years after a foreclosure and 2 years after a short sale.
Chapter 7 and 11
At least four years must have elapsed since the discharge date of the bankruptcy. If it is determined that financial mismanagement caused the bankruptcy. The buyer must also provide proof that all debts not satisfied by the bankruptcy have been paid. They will also need a minimum score of 680. For Extenuating circumstances buyers need only wait two years from the discharge date.
Extenuating circumstances are when events or conditions happen that are out of the buyers control. Examples include divorce, job lay off, medical bills. The buyer will also need to provide documents that show they tried to get these things resolved. So save copies of all letters you may write to creditors.
This is not a complete list. If you are ready to buy a home after a credit crisis, or want more information, I can recommend lenders for you to interview. You may not qualify at this time, but they can review at your credit report and tell you what you will need to do so you will qualify soon.
Another thing that a buyer must do after foreclosure, short sale of bankruptcy is reestablish credit. Some lenders will require four credit references, and one must be a housing reference, such as payments to a landlord or rental company. It is a good idea to copy rent checks so you can prove you were making rent payments on time.
Reestablishing credit will not be easy. You may even get turned down a few times. The interest rate will probably be very high, and the limit very low. It is recommended to use a credit card and pay if off every month so you demonstrate to a lender you can budget your money correctly.
If you are heading toward a foreclosure, give me a call you do have options. I can explain what your choices are. Rose Wiegand, Broker/notary, Crestline Real Estate 909-338-9995, E-mail: Crestlinehomes@aol.com
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