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How to buy a home after foreclosure, short sale, or bankruptcy

[Dec 15, 2008.]


How soon after a foreclosure, short sale, or bankruptcy until I can buy another house? 

This is the question I am asked more than any other these days.  The dramatic downturn in the economy has left many homeowners who had recently done a move up or purchased their first home to go into foreclosure, short sale, or bankruptcy.  Most people want to know how soon they can get their lives back on track, and back to normal.


How to buy a home after a foreclosure, short sale, or bankruptcy

You will likely need to wait at least two years to buy a new home.  The best interest rates will most likely come from a government sponsored loan such as FHA or Fannie Mae and Freddie Mac.  There are a wide variety of government loan options: FHA, Fannie Mae, Freddie Mac, Ginnie Mae, VA, USDA and more.  The FHA requirements for foreclosure, short sale, or bankruptcy are listed below.  FHA typically has the most lenient qualifying guidelines.

It is possible to find an independent bank, or a private mortgage lender, who will lend sooner after default.  But interest rates for these types of loans can be very high.  A high interest rate equals higher monthly mortgage payments.  In many cases, high mortgage interest rates and high mortgage payments caused the original default.  So it may be prudent to wait until a lower interest rate is available.


FHA offers flexibility in credit score / credit history

·         If you lost your home to foreclosure, you won’t be eligible to apply for a new FHA mortgage for three full years from the date of the foreclosure settlement

·         If you were able to sell your home prior to a foreclosure settlement, but the sales price was not enough to cover the entire amount owed to the bank-you did a short sale.  A short sale is looked at in different ways, depending on the mortgage payment history.  If you had no late payments prior to the sale, it would be much more favorable to the new lender than if you stopped paying the mortgage before the sale was complete.   It will be very important to re-establish good credit and wait a period of two to three years before applying for a new FHA mortgage.

·         You may apply for new FHA mortgage while in chapter 13 bankruptcy after twelve months of good payment history.  Or, if the bankruptcy was a chapter 7, you can apply two years after the discharge date.

Yes, foreclosure, short sale, or bankruptcy will damage your credit.  Usually it takes seven years for delinquent accounts to begin dropping off of the credit report. 

These are really hard economic times for a lot of people.  But you can buy another home and get back on track.  The government has mortgage loans that are available to help after a period of time.








Written by Tiffini Anderson, CMPS




About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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