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Tuesday, March 23, 2010

You Have a Foreclosure or Short Sale.... When Can You Buy a Home Again?

A common tale...

Alex and Christina purchased a home in Phoenix back in May of 2006 for $725,000. Last year they requested a loan modification from their lender to whom they owed slightly over $680,000 (in a first & second mortgage). Their request for a modification was denied by the lender. Around the same time, a home similar to theirs on the same block sold for $410,000. Uh oh!

So Alex and Christina listed their home with a real estate agent to do a short sale. They had some offers, but the lender did not approve any of them. You see, since the lender is accepting less than what they are owed in a short sale, they must approved the offer. Alex and Christina became frustrated witht the process and walked away. The home was eventually foreclosed by the lender and sold for $374,000.

Prior to this event, Alex and Christina had perfect credit. Their scores were in the high 700 range. Today they are probably in the low 500's. Question: When can Alex and Christina qualify for a home loan again?

Their scores will rise as time passes and they continue to have other good credit. To qualify for an FHA loan with most lenders, they scores will have to rise to at least 620. In addition there are rules about how much time must pass after a foreclosure, deed in lieu of foreclosure, and short sale. There are different guidelines that lenders follow depending on whether the event was due to extenuating circumstances (e.g. income loss, illness, or death in family), or financial mismanagement (most everything else).

Foreclosure

Foreclosures occur when the homeowner defaults and the lender reposses the property. This is the case in the example above with Alex and Christina. Their foreclosure was not a result of extenuating circumstances; like many others they got in over their heads. Therefore they will have to wait 5 years before they can qualify for another home loan with most conventional lenders. If the foreclosure had been the result of extenuating circumstances, then their wait time is reduced to 3 years.


Deed in Lieu of Foreclosure

A deed in lieu of foreclosure is when the homeowner accepts the fact that they will lose the home and willingly grants the property to the lender without having to go through the foreclosure process. The foreclosure process can be expensive and time consumer for lenders, especially in judicial foreclosure states. If Alex and Christina had done a deed in lieu of foreclosure, then they would have to wait 4 years before qualifying for a mortgage again. If the event was due to extenuating circumstances, that time is reduced to 2 years.

Short Sale

How long would it be if Alex and Christina had followed through with the short sale? Well, that appears to have the shortest "period of waiting." Regardless of the reason for the short sale, in only 2 years they could potentially qualify for a home loan again. That sounds much better than the 5 year wait they will have after their foreclosure.

So if someone is facing a foreclosure or short sale, and they want to buy a home again as soon as possible, then a short sale may be advantageous. If you or someone you know may be interested in more information about a short sale, go to http://emodifymyloan.com/shortsaledetails/.

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