A Guide To Bankruptcy: Foreclosure & Short Sale Waiting Periods For Different Loan Types
Virtually no one goes into home ownership expecting that they will one day go through a foreclosure or a short sale. Unfortunately, this does not mean that it can’t happen.
The bad news is that there is almost always a waiting period between a foreclosure or a short sale, and when you can qualify for a home loan again. The good news is that these waiting periods can sometimes be shortened, and if you make an effort to improve your credit, you can give yourself a fair chance at getting another mortgage loan in the future.
Here is a look at foreclosure and short sale waiting periods for several different loan types.
Fannie Mae/Freddie Mac Loans
There are number of factors that could affect your waiting period for a Fannie Mae or Freddie Mac loan after a short sale
There will be a two year waiting period if the LTV (loan-to-value) ratio of the loan is 80%, four years if the maximum LTV is 90%, and seven years if the LTV ratio is within the Fannie Mae eligibility matrix.
After a foreclosure, there is a seven year waiting period. You may be able to shorten that time to three years if you can show that the foreclosure was the result of extenuating circumstances, that the LTV ratio on the mortgage was 90% or within the eligibility matrix, and use the new loan for the purchase of a new personal residence, or a limited cash-out refinance.
Your waiting period after a short sale with an FHA loan will vary depending on your credit history, as well as the root cause for the short sale.
If you were not in default on the prior mortgage at the time of the short sale, or if you made all of your mortgage and debt payments on time for 12 months or more leading up to the short sale, then you may not have to wait to apply for an FHA-insured loan.
Otherwise, a three year waiting period may prove inevitable. If you are able to show that extenuating circumstances led to the short sale, then you may be able to qualify sooner.
Of any foreclosures, the FHA loan is one of the most forgiving, but there is still a three year waiting period. If you can show that a one-time event beyond your control was the cause of the foreclosure, then you may be able to shorten this period.
With a USDA loan, there is a three year waiting period after a short sale if your FICO score is lower than 640. If it is higher than 640, you may be able to qualify again sooner.
After a foreclosure, there is a three year waiting period from the recorded date of the foreclosure.
With a VA loan, there is no seasoning period after a short sale, unless you were attempting to take advantage of the market. This may depend on the lender, as conventional wisdom has it that there is a two year waiting period after a short sale.
Regardless, after a foreclosure, a two year waiting period is standard.
If you want to quality for a VA loan again, your credit score needs to be restored to 620 and above.
If you want to buy again, it’s important to reestablish your credit. You should take a look at your credit report, and see what you can do to improve your score. It is not uncommon to find items on your report that can be corrected relatively easily.
Recovering from bankruptcy isn’t necessarily easy, and if you can avoid it, that’s the ideal situation. However, if you go through a foreclosure or a short sale anyway, you can still become a homeowner again. You may have to wait for a few years, but if you make a concerted effort to prepare, you can find another home that meets your needs. To find out you’re able to buy today or what you may need to buy in the future contact our preferred lender to get started.