After Bankruptcy/Foreclosure Short Sale: How Long Until I Can Buy A House Again?
By: Kristy Hernandez
One of the most common client concerns about doing a bankruptcy or surrendering a house in foreclosure is that they can never buy a home again. NOT TRUE!
With the recent increase in foreclosure and bankruptcy filings, lenders are changing their guidelines to permit potential homeowners to get back in the real estate market faster. The following explains how each of these events affect purchasing a home based on the new FHA guidelines.
CHAPTER 13 BANKRUPTCY
FHA will consider approving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee’s written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability
CHAPTER 7 BANKRUPTCY
At least two years must have elapsed since the discharge date of the borrower and / or spouse’s Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable job.
LATE PAYMENTS
During an underwriter analysis of borrower credit, the overall pattern of credit behavior is being reviewed rather than isolated cases of slow payments. If a good payment pattern has been maintained, regardless of a specific period of financial difficulty preceded it, the borrower may escape disqualification.
SHORT SALE / PRE-FORECLOSURE SALE
FHA does not currently have a policy regarding the time required to reestablish credit and obtain a new FHA loan after a short sale. However, the borrower must be able to qualify using standard FHA guidelines including the fact that they typically cannot have any late payments on their mortgage for the previous 12 months.
Although this is the official FHA policy, many lenders have heard that FHA currently will not insure a new loan application from a borrower with a short sale that is less than three years old. Many of the individual banks and lenders have implemented their own policies regarding the waiting period after a short sale. I have seen a typical range between two and four years. We anticipate that FHA will issue a written policy regarding short sales with more liberal guidelines in the near future.
FORECLOSURE
FHA insured mortgages are generally not available to borrowers whose property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years. However, if the foreclosure of the borrower’s main residence was the result of extenuating circumstances, an exception may be granted if they have since established good credit. This does not include the inability to sell a home when transferring from one area to another.
To find out more about bankruptcy, foreclosure or loan modification, please contact the Law Office of Kristy Hernandez. The Law Office of Kristy Hernandez is a law firm with locations in the Bay Area and Sacramento.
To reach our Bay Area location (servicing Fremont, Union City, Newark, San Jose, Oakland, San Mateo, San Ramon, Livermore, San Francisco, etc.) please call (510) 456-7400.
To reach our Sacramento location (servicing Sacramento, Citrus heights, Orangevale, Folsom, Roseville, West Sacramento, Antelope, Rio Linda, Woodland, Fairfield, Vacaville, etc.) please call (916) 728-1500.
Also, check us out online at www.khlawoffices.com or www.savingcaliforniahomes.com.