Buying After a Short Sale or Foreclosure

We’re all guilty of bad judgment at one time or another. But whether it’s bad judgment or bad luck, being unable to make your mortgage payments has the same result. You lose your home.

You may have declared bankruptcy, sold your home through a short sale or gone through a foreclosure. As a result, your credit has been affected to a greater or lesser extent. And this may make it difficult to purchase another property.

Here are some of the things you need to be aware of when thinking about financing your next home:

In picking a mortgage program, your best bet is to look first at Federal Housing Administration (FHA) home loans, then at conventional mortgages. The FHA is more lenient in its guidelines than Fannie Mae is, so we’ll focus on FHA loans.

Bankruptcies: There are two basic types of bankruptcies: one where debt is wiped clean (Chapter 7) and one where there is a payment plan (Chapter 13). In general, you’ll need to wait to get a loan; for two years after the discharge date of a Chapter 7 bankruptcy and one year after Chapter 13, providing you can prove that payments have been made on time.

Short Sales: In this situation, you sold your home for less than you owe and the lender took a loss on the property. Waiting time for an FHA loan is three years. In most cases, and depending on your credit scores, you’ll need a minimum down payment of 10%.

Foreclosures: You can apply for an FHA loan three years after the foreclosure is complete. Extenuating circumstances that may reduce this time include being unable to sell your home when relocating due to a job change or some hardship that is unlikely to recur, such as a medical leave due to unforeseen circumstances that caused a lapse in income. In both cases, you will need proof.