How Long Do I Need to Wait to Purchase or Refinance After experiencing a BK, Short Sale or Foreclosure?
In the years since the economic downturn many rules have change and adjusted when it comes to how and when you can Purchase or Refinance post a Credit Event. Trying to keep up with all the updates/info is a daunting task, so listed below is some information to help you maneuver the mortgage minefield.
What are my Financing Options??
You basically have 3 options when it comes to obtaining financing to purchase a home. More than 90% of all mortgages are funded by either Fannie Mae/Freddie Mac, VA or FHA!
Since these are the agencies that make the rules for the majority of the loans the below listed waiting periods will most likely apply to situation. These rules are current as of January 2017.
- How Long After a Foreclosure Can I Repurchase or Refinance Again?
The current 2021 waiting periods post Foreclosure are….
Conventional. It is 7 years before you can repurchase again using Conventional financing.
*New Rule added. There was a new change implemented recently (see below), whereby if you included the foreclosure in a bankruptcy, you can qualify after 4 years instead of 7 years. Contact me for more details ( Jorge G Gomez, CRMS / (773) 307-5509) on how to qualify under this new rule.
For conventional financing, the bankruptcy guidelines have been updated to indicate that if a mortgage debt has been discharged through bankruptcy, even if a foreclosure action is subsequently completed to reclaim the property in satisfaction of the debt, the borrower is held to the bankruptcy waiting periods and not the foreclosure waiting period. This means a buyer can now qualify for conventional financing after 4 years from the bankruptcy date, instead of the foreclosure date of 7 years. Also, if there were extenuating circumstances (i.e. Death of a wage earner or medical emergency) then the waiting period could be reduced to a minimum of 3 years.
FHA. It is 3 years before you can repurchase again using FHA financing. Or, see below for how a FHA buyer can qualify again after just 1 year if they experienced an economic event.
VA. It is only 2 years before you can repurchase again using VA financing.
- How Long After Short Sale I Repurchase or Refinance Again?
The current 2017 waiting periods post Short Sale / Pre-Foreclosure are….
Conventional. It is 4 years before you can repurchase again using Conventional financing. Please note, it is possible to do it at 2 years if you had extenuating conditions. It is also possible after 2 years if you have a 20% down payment, but expect to also pay a much higher interest rate and higher loan fees.
FHA. It is 3 years before you can repurchase again using FHA financing.
*FHA TIP: The FHA has a loophole that not many people know about, if the FHA buyer did not have any late payments before their short sale, they are allowed to automatically qualify again for FHA financing.
New FHA Short Sale Rule for 2014. The FHA announced in late 2013 they have reduced the time line that buyers must wait after a bankruptcy, foreclosure or short sale before qualifying for an FHA-backed mortgage, if a buyer experienced an “economic event” whereby their household income fell by 20% or more for a period of at least six months.
The period had previously been two years following a bankruptcy, and three years following a foreclosure or short sale. The agency has now reduced the waiting period to ONE YEAR.
VA. No mandatory waiting period as long as Veterans overall credit is good.
- How Long After a Bankruptcy Can I Repurchase or Refinance Again?
The current 2017 waiting periods post Bankruptcy…
Conventional. For a chapter 7 Bankruptcy it is 4 years and 2 years for a chapter 13 bankruptcy from date of discharge, before you can repurchase again using Conventional financing. Please note, it is possible to do it at 2 years on a Chapter 7 if you had extenuating circumstances. Also, if you had multiple bankruptcies then the waiting period is 5 years from that most recent discharge.
FHA. For a chapter 7 Bankruptcy it is 2 years and 1 year with extenuating circumstances before you can repurchase again using FHA financing. . For an ACTIVE chapter 13 it's 1 year with satisfactory payout performance and permission from the bankruptcy court to enter into a new mortgage before you can repurchase again or refinance using FHA financing.
VA. For a chapter 7 Bankruptcy it is 2 years, and 1 year for a chapter 13 bankruptcy, before you can repurchase again using VA financing.
- What if My Situation doesn’t fall under the above rules?
There are mortgage options available for borrowers who do not fit these more traditional mortgage options above.
Portfolio lenders are stepping in to provide mortgage options for buyers who cannot qualify for conventional, FHA and VA financing, and we have lenders who will provide financing for buyers less than 6 months out of a foreclosure, short sale or BK for example. Larger down payments will be required of course, and rates will be higher than the more traditional loan options listed above. Contact me for more details ( Jorge G Gomez, CRMS / (773) 307-5509 ).
- Rebuilding Your Credit Scores
With the housing downturn is now at over 14 years old and the COVID Pandemic at over 2 years, more borrowers are coming back into the market to purchase a home or refinance, who had suffered from a financial hardship in the past.
But another part of the puzzle to helping you get in a position to repurchase again, is ensuring you have also started to re-establish your credit again since the financial hardship. For example, even though the required time line of say 2 or 3 years may have passed so you can qualify for conventional or FHA financing again, it is important you have also started to rebuild your credit and have the required credit scores to qualify again for financing. For example, FHA only requires a 580 credit score to repurchase again, and while VA can go that low too but most lender overlays require a credit score of 620 - 640.
The first step is to get a copy of your credit report to verify if the financial hardship or discharge is reporting correctly and to also see what your scores are. You can go to www.annualcreditreport.com to get a FREE copy of your credit report.
Then the next step is to start rebuilding your credit scores. Call me and we can discuss what you need to do next to get your scores up to required levels to help ensure that you understand how credit works and to improve your scores, so you are able to get the best rates and financing terms.
F. Tips for borrowers
There are many people who suffered a financial hardship in the past who are already getting back into the market again to purchase a home. As the VA only requires 2 years from a short sale or a foreclosure, and the FHA only 1 year in some cases, there are a lot more people who are eligible to repurchase again but just don’t know they can.
A lot of buyers I’ve spoken to who suffered a financial hardship in the past, are genuinely surprised when they realize that FHA or VA for example allow them to purchase again after just 2-3 years!
If you have any other questions you’d like to discuss just give me a call ( Jorge G Gomez, CRMS / (773) 307-5509 )
