Mortgage After Short Sale, Foreclosure, or Bankruptcy
You lost your Chandler AZ home to foreclosure or short sale. Or maybe you filed bankruptcy to save your home. It seems like the end of the world, doesn’t it? Not only has your credit been damaged, but your pride may have taken a hit as well. After the Phoenix market peaked in 2006 home values continued to decline for a few years in a row, and it was a steep decline as the economy tanked. You may have lost your home due to medical bills, job loss, taking out a variable rate mortgage, or a number of other reasons.
It’s not the end of the world. You get a fresh start and a new opportunity to own again. Today’s blog post was contributed by Deborah LaPierre with Academy Mortgage (click here to visit her website)
Most people want to know the time frames in which they can look at getting a mortgage after a short sale/foreclosure/bankruptcy. If someone does everything that I’m going to suggest but haven’t waited long enough, time will still play a factor. It depends on what kind of loan you are going for. Here are the spans of time and explanations:
Conventional Loan After…
SHORT SALE – 2 year wait with 20% down payment
FORECLOSURE – 7 years
BANKRUPTCY – 4 years after Chapter 7 – 2 years from discharge of Chapter 13 – 4 years from dismissal of Chapter 13
FHA Loan After…
SHORT SALE – 3 years
FORECLOSURE – 3 years
BANKRUPTCY – 2 years from Chapter 7 - 1 year on a Chapter 13 (with 1-yr pay-out period)
VA Loan After…
SHORT SALE – 2 years
FORECLOSURE – 2 years
BANKRUPTCY – 2 years from Chapter 7 – 1 year with Chapter 13 (with 1 yr pay-out period under BK)
USDA Loan After…
SHORT SALE - 3 years
FORECLOSURE – 3 years
BANKRUPTCY – 3 years for Chapter 7 – 1 year for Chapter 13 (with 1 yr pay-out period under BK)
It should be noted that with several of the BK (and some of the foreclosure & short sale) instances above, it may be possible to qualify prior to the listed dates with extenuating circumstances and other criteria.
Get Optimally Qualified for a Mortgage After Short Sale, Foreclosure, or BK
Here are the things I encourage buyers to do to get optimally qualified for a mortgage after short sale or foreclosure:
- Have a Mortgage Professional evaluate your overall qualifications and identify any potential red flags
- Re-establish your credit immediately. TIP: I recommend 2-3 trade lines, and on revolving accounts, use minimally and maintain a balance of less than 25% of the limit, pay bill on time every month and leave a balance of $20 after paying the bill. This can be done by opening Secured Cards and Secured Loans. (MidFirst Bank, Wells Fargo, and Bank of America offer these programs). Even if revolving balances are paid in full do not close them!
- Establish bank account for down payment and closing costs. Depending upon the loan program, the down payment may be up to 20% down. As you approach the anniversary date post-foreclosure/short sale/bankruptcy, ensure funds are available in the bank account and minimize transfers of funds to and from bank accounts to minimize documentation requirements. Do NOT bounce checks or cause overdrafts. If gift funds (funds from a family member, for instance) are anticipated, discuss this with the donor.
- Pay rent/lease on time.
- Maintain stability with employment, if at all possible. Reminder: Self-employment and 1099 income requires 2 years of filed tax returns.
- Have easy access to important documents, such as: Divorce Decree, Child Support Order, Bankruptcy Discharge papers, Tax Returns, and W-2/1099 Forms.
- File taxes on time.