How soon can I get a home loan after my Short Sale?
We are always looking for the short cut (or shall I say the “most efficient path”) Let me be clear – I do not mean cheating the system. We have had way too much of that in the real estate industry already! I just mean working the system as aggressively as possible while staying within the lines.
Life on the real estate front has been tough over the past 5 years. Many people have been directly affected by this through a short sale or foreclosure. Some have even opted for bankruptcy to try to avoid losing their home. Once the dust settles though, the healing can begin. And that is where our coaching and strategies come into play.
So, here is today’s question: How soon can I get a home loan after my Short Sale? To answer this and some other related questions we turned our in-house loan expert, John Davis with W.R. Starkey for his take on the current lending guidelines in these situations.
In general cash reserves and credit scores are slow to recover after emerging from distressed situations so the quickest path is almost always an FHA loan.
LENDABILITY AFTER A SHORT SALE
How soon can I get a loan after my Short Sale?
It depends on how much money you want to borrow and how much cash you have saved. The quickest path is almost always an FHA loan because it requires the least money down at 3.5% of the Purchase price. FHA will allow you to qualify for a new loan as soon as 3 years have passed from the date of your Short Sale. And, they will lend up to $346,250 in the Atlanta area depending on your financial situation. If somehow you are able to save up 20% to put down, you can cut a year off of the wait through a conventional loan option and get your loan after only 2 years. Otherwise, it will be 3 years for conventional with 10% down and at that point the 3.5% down FHA loan may be more attractive from a cash flow perspective.
LENDABILITY AFTER A FORECLOSURE
What about a foreclosure?
The typical waiting period for obtaining a new conventional loan after a foreclosure is 7 years. That is the number most people associate with foreclosures. However, what most people do not know is that the waiting period is only 3 years through the FHA lending channels. That is less than half the time!
LENDABILITY AFTER A BANKRUPTCY
What does it look like if I had to file for bankruptcy?
With bankruptcy, the path is not as long as a foreclosure and it depends on which route was taken ( Chapter 7 or Chapter 13 ). If Chapter 13 was the route taken, the waiting period may only be 2 years. With Chapter 7 and all other types the wait will probably be 4 years.
GOING ABOVE THE FHA LOAN MAX OF $346,250
If I am looking at a $425,000 property, do I have to go with a conventional loan?
No. Although the loan maximum allowed by FHA for the Atlanta area is $346,250, a buyer can still use FHA as the loan type and make up the gap difference with cash. FHA is not just a low budget/low credit last stop. Sometimes the rates and underwriting conditions are more favorable even for buyers with good credit scores and plenty of cash. FHA financing then becomes a savvy way to take advantage of low rates and low down payment rules so cash can be conserved for other things (like renovations, furnishings, etc).
Great information! Thanks, John.
Here is the Legal Fine Print so no one gets on to John for helping me with this:
GA License # 24412
WR Starkey Mortgage, LLP NMLSR# 2146
7000 Central Parkway Suite 1440
Atlanta, GA 30328
Georgia Residential Mortgage Licensee