How long until I can buy again after a short sale or foreclosure?

How long until I can buy again after a short sale or foreclosure?  This question comes up a lot.  The answer depends on the type of defaulted loan and circumstances.  See the chart and commentary below.

Right now, I think a more important question is, “If I do a short sale on my home in California, will I have any tax obligations on the forgiven amount?”  The answer is NO if we start before July.  The mortgage tax forgiveness act is due to sunset at the end of the year, so there is still time get started and end the year with a Short Sale approval and no tax consequences.

CONVENTIONAL LOAN    
Reason Extenuating
Circumstances
Financial
Management
Bankruptcy 2 years 4 years
Multiple Bankruptcies 3 years 5 years
Foreclosure 3 years 7 years
Deed in Lieu 2 years 4 years
Short Sale 2 years 4 years
FHA LOAN    
Reason Extenuating
Circumstances
Financial
Management
Bankruptcy 12 months 2 years
Foreclosure/
Deed in Lieu
3 years 3 years
Short Sale* 3 years 3 years

* New FHA financing is allowed, before the 3 year waiting period, if borrowers’ were current on their mortgage and other installment debts at the time of the short sale of their previously owned property and the proceeds from the short sale serve as payment in full.

Borrowers will not be eligible for new FHA financing before the 3 year time period if they took advantage of declining market conditions and purchased at a reduced price a similar or superior property within a reasonable commuting distance.

Per Fannie Mae, Extenuating Circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim.  Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).

Individual lenders will usually have their own credit guidelines as well when the mortgage that was attached to the adverse credit was their own, i.e., if mortgage attached to a property that was foreclosed upon was Wells Fargo, borrower would need to wait 7 years to get a new Wells loan.

Borrowers must also exhibit improved credit history since the adverse credit incident, for all situations.

* New FHA financing is allowed, before the 3 year waiting period, if borrowers’ were current on their mortgage and other installment debts at the time of the short sale of their previously owned property and the proceeds from the short sale serve as payment in full.

 Borrowers will not be eligible for new FHA financing before the 3 year time period if they took advantage of declining market conditions and purchased at a reduced price a similar or superior property within a reasonable commuting distance.

Per Fannie Mae, Extenuating Circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim.  Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).

Individual lenders will usually have their own credit guidelines as well when the mortgage that was attached to the adverse credit was their own, i.e., if mortgage attached to a property that was foreclosed upon was Wells Fargo, borrower would need to wait 7 years to get a new Wells loan.

Borrowers must also exhibit improved credit history since the adverse credit incident, for all situations.

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