Monday, February 6, 2012

CNNMoney: When can I buy a home again after a short sale?

Good brief article from CNNMoney.com.

I've heard that you have to miss one or two mortgage payments in order for a lender to approve a short sale. Is that true? Also, how long do I have to wait in order to get a new mortgage if I do go ahead with a short sale? –Name withheld 
You don't necessarily have to miss a payment to have a short sale approved. You may be able to arrange one by simply writing a hardship letter. "The letter would describe why the borrower is unable to fulfill his obligations," says Mike Fratantoni, vice president of research and economics for the Mortgage Bankers Association. Some banks will still say no, but you may get lucky. 
The answer to your second question depends on the circumstances of the short sale. If you were current on all mortgage and other debt payments for the 12 months preceding the short sale, you're eligible immediately for a new FHA-insured mortgage, says Lemar Wooley, a spokesman for the Department of Housing and Urban Development. 
If you're in default on your mortgage at the time of the short sale, you won't be eligible for a new FHA-insured mortgage for three years. That said, if you were in default due to circumstances beyond your control, such as the death of the primary wage earner or a long-term illness, and you were in good financial and credit shape prior to that time, a lender may make an exception. 
In either case, even once you're eligible, you may have trouble qualifying, depending on how the bank reports the loan settlement to the credit bureaus. Sometimes a bank will call the balance "paid in full," while other times a bank might say, "settled for a lesser amount;" the latter can cause your score to drop significantly. A bank can also go after the rest of the balance in a judgment—it's up to the financial institution. 
"You can do a short sale, have it not hit your credit, and purchase a new home right away," says Mark Boyer, CEO of Foundation Financial Group. "But that's really kind of a perfect scenario."

Here is a flyer from our friends at Smart Financial with some of the most common investor guidelines for buying after a short sale, foreclosure, or bankruptcy.

1 comment:

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