Guidelines for Borrowing after Foreclosures and Short Sales

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Many people go through financial hardships and when that happens, they are always wondering when they can borrow again. Here are the guidelines for each agency regarding foreclosures and short sales.  

Foreclosures

  • If a client is only on the title to the home, and not obligated to the debt, foreclosure guidelines do not apply.
  • If the home is free and clear and the foreclosure was due to unpaid property taxes, foreclosure guidelines apply.
  • Conventional: Not allowed within seven years from the date credit was pulled.
  • FHA: Not allowed within three years from application date.
  • FHA: Once a case number is assigned (new or transferred), seasoning is measured from the case number assignment date.
  • VA: Not allowed with within two years from the date credit was pulled.
  • VA: Refer/Eligible: In addition to above, must meet reestablished credit requirements. 
  • Use the date last delinquent as the start date and the date credit was pulled as the end date:
    • Date last delinquent: from credit report: 05/15/2010
    • Credit report date: 12/15/2015
  • If the client provides documentation showing a different foreclosure completion date, use the date on the documentation.
  • Time elapsed since foreclosure: 5 years, 7 months
  • FHA Only: Use the date of the last delinquent as the start date and the date of application as the end date.

 

Short Sale

What is a short sale?

  • A short sale is the sale of a house in which the proceeds are less than what the owner still owes on the mortgage. The lender agrees to payoff of a lesser amount than actually owed, even on a current mortgage, to facilitate the sale of the property to a third party.
  • Also known as, Settled for Less, Discounted Payoff and equity Deficient, or Account legally pain in full for less than the full balance
  • Conventional: Not allowed within 4 years of credit report date, regardless of LTV.
  • FHA: Short sales are allowed under certain circumstances, regardless of date the derogatory event took place.
    • If short sale took occurred greater than or equal to 3 years from application, ALL of the following requirements must be met:
      • Must be manually downgraded.
      • Max 0x30 on a mortgage and installment payment history 12 months prior to the short sale date.
      • Max 0x30 on mortgage and installment pay history 12 months prior to the application date.

Note: Once a case number is assigned (new or transferred), seasoning is measured from the case number assignment date.

  • VA: treat the same as foreclosure.