Life after Short Sale/Foreclosure and Bankruptcy

Everyone wants to know what are the rules after I either short sale or foreclose on my house. What are the time frames until I can buy again? This section will go through current rules on when you can borrow on a house again. Knowing this can help you plan and prepare to be able to take advantage once the various time periods have elapsed.

First, let's talk about FHA. FHA has varying rules for what is called extenuating circumstances. Before I discuss the exceptions to the rules let me first go through the general rules.

o Short Sale - (when you sell the house for less than what you owe) - 3 years from completion date
o Foreclosure - (When the Bank repossess the home, or the bank takes back the home after non-payment *every state has varying rules on when a Bank can foreclose check the applicable market you are in.) - 3 years
o Chapter 7 Bankruptcy - (is a total liquidation of your debts, certain rules apply regarding qualifying for a Ch.7 Bankruptcy, check with an attorney) - 2 years
o Chapter 13 Bankruptcy - (a structured repayment plan of your debts also known as a reorganization) - 1 year of the payout must elapse and payment performance must be satisfactory, permission from the court required.

Extenuating circumstances only applies to FHA and VA loans, when it comes to the rules for an exception. Extenuating circumstances are nonrecurring events that are beyond the borrower's control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower's claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower's inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).

Short Sale rule exceptions is that you need to be current on your mortgage before the home sells for less and you need to have been transferred or relocated to avoid the two year penalty, other than that I am not seeing many exceptions made to the 2 year waiting period before you can buy after a short sale.

VA

o Short Sale- 2 years
o Foreclosure - 2 years
o Bankruptcy - Chapter 7 - 2 years
o Bankruptcy - Chapter 13 - 1 year of the payout must elapse and payment performance must be satisfactory

Conventional
The rules for conventional are more restrictive.

o Short Sale -
? 2 years with a Max 80% LTV
? 4 years with a Max of 90% LTV
? 7 Years for all other LTV's
o Foreclosure - 7 years
o Ch. 7 Bankruptcy - 4 years from Discharge Date
o Chapter 13 Bankruptcy -
o 2 years from Discharge
o 4 years from Dismissal

I always encourage people to consult with a mortgage lender to see what are the short-term and long term impact of your pending occurrence. What are the implications of a short sale, foreclosure or bankruptcy in terms of how long before you can buy a home again. This information should help with the evaluation process. If you have any additional questions please let me know at Matt@BakerMortgageTeam.com