Buying a Home after a Short Sale or Foreclosure — YES YOU CAN
If you lost your home to a short sale or foreclosure during the economic recession, you are among estimated 7.3 million homeowners who lost their homes during this period. However, this situation should not deter you from owning your dream home; contrary to the popular belief that once bitten twice shy. The question, how to buy home after a short sale or foreclosure is one that many “Boomerang” homeowners like you and first time home buyers are struggling with. The first crucial step in the process is to weigh your financing options. And yes, you do have options for financing after losing your home to a short sale or foreclosure. What follows are just a few.
FHA (Federal Housing Administration)
FHA is the best option on how to buy a home after a short sale or disclosure. With your credit score ruined by the short sale or foreclosure, getting a mortgage can be difficult since lenders require a 7-year waiting period before you can qualify for a mortgage. However, FHA is less stringent on homeowners with bad credit history and the waiting period is three years or one year in case of extenuating circumstances like:
- Death or permanent disability of the main bread winner
- Temporary financial hardship like loss of employment
An extenuating circumstance occurs for a short time, is beyond your control and leads to financial instability. You must prove that you have overcome this situation and that your credit history is improving to qualify for FHA loan.
Fannie Mae/ Freddie Mac loan
Following in the footsteps of FHA, Fannie Mae has lowered the waiting period for homeowners who have faced short sale to two years. The waiting period varies depending on the initial deposit. If you make a 20% deposit, the waiting period is two years, four years if you pay 10% and seven years if you make the minimum deposit. The occurrence of extenuating circumstances can reduce the waiting period, but you are required to provide prove and documentation of the events occurring.
With no initial deposit required, no insurance on mortgage required and two years waiting period after the short sale, VA (Veterans Administration) is another good option on how to buy home after short sale or foreclosure. However, if your previous loan was a VA loan, you don’t qualify. Other standard requirements like improving credit history must be fulfilled to qualify for VA loan.
With your financing issues resolved, it makes the next step of home shopping infinitely more productive and satisfying. CENTURY 21 Peak believes that everyone deserves to be a homeowner, and we can connect you with the resources you need to make your plans a reality.