Buying A Home After Foreclosure Or Short Sale

Learn how you can qualify to purchase a home after a foreclosure or short sale.

If you lost your home to a foreclosure or short sale, you’re not alone. In fact, you’re one of millions since the housing crash of 2007. But you could also be one of the growing many who are purchasing homes again. Here’s what to expect and the steps you’ll need to take to qualify for a new loan through Freddie Mac/Fannie Mae or the Federal Housing Authority (FHA).

If you’ve been through a foreclosure…

You’ll generally need to wait between three and seven years before you’ll qualify for another loan. If you’re applying for a loan with the FHA, you’ll need to wait three years; with Freddie Mac/Fannie Mae, the waiting period is three to seven years. The length of your wait depends on:

• Extenuating circumstances. If your foreclosure was the result of a one-time event beyond your control that dramatically affected your income—such as a serious illness or job layoff—then Freddie Mac/Fannie Mae will only require a three-year waiting period. The FHA may also review your case and adjust your waiting period accordingly.
• Credit score. Just because you’ve made it past the waiting period, doesn’t mean you’ll qualify for a new loan. A foreclosure is going to put a big dent on your credit score, which is still an important factor in qualifying.

If you’ve been through a short sale…

You’ll generally need to wait up to three years for a loan with the FHA, and two to seven years for a loan with Freddie Mac/Fannie Mae. Again, your waiting period is dependent on several factors:

• Number of delinquent payments. Under the guidelines of the FHA, there is no time penalty for homeowners who were current on their mortgage payments in the year prior to the short sale.
• Down payment. The larger your down payment for your new loan, the less time you’ll have to wait to apply. Under Freddie Mac/Fannie Mae, if you put 10 percent down then you’ll only need to wait four years. If you put 20 percent down (or 10 percent down and have extenuating circumstances) then your wait period reduces to just two years.
• Credit score. Again, your credit score plays a large role in your ability to qualify for a new home loan. Unlike a foreclosure, a short sale won’t cause as much damage to your credit, but a lender will still take it into consideration.

If you do qualify for a new loan—whether you came out of foreclosure or a short sale—you’ll likely have to pay a higher interest rate, so you’ll need to take that into consideration when determining how much of a mortgage you can afford.

Since your interest rate is largely determined by your credit score, take the length of your waiting period to improve your credit score, and to save up for a larger down payment. Then talk to a financial advisor, attorney or lender to better understand your options.

This article contains general information. Individual financial situations are unique; please, consult your financial advisor or attorney before utilizing any of the information contained in this article.

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