Posted on May 10th, 2013
Since the financial crisis hit in September 2008, there have been roughly 4.2 million completed foreclosures across the U.S. through February 2013, according to housing data company CoreLogic. That means there are an awful lot of former homeowners out there hoping to buy a home again someday. And the good news for those folks is that mortgage lenders are perfectly willing to lend to borrowers after a foreclosure – as long as they wait long enough, that is.
“The biggest hurdles for borrowers in qualifying for a mortgage after a foreclosure are the credit score and the waiting period,” says Darice Vieira, loan officer with Commerce Mortgage in Visalia, Calif. “Provided the rest of their credit profile is good, it is not much different than an ordinary candidate applying for a mortgage loan.”
So while it’s no fun to be patient, the waiting period goes hand-in-hand with credit repair. After such a major financial trauma like foreclosure, lenders require borrowers to wait between three and seven years to reestablish their credit and prove they can responsibly take on debt again.
Potential buyers with foreclosures in their past will need to wait between four and seven years in order to obtain a conventional mortgage backed by Fannie Mae. Those who can prove they had extenuating circumstances like divorce, job loss or severe injury or illness could get a new mortgage in as little as three years. Borrowers can apply in three years for an FHA loan if they can put a minimum of 3.5 percent down. And after a short sale, borrowers generally have to wait at least two years before their next mortgage.
It is possible to get a mortgage sooner through lenders who do not sell to Fannie Mae but it will be pricey – much higher interest rates and larger down payment requirements.
The best thing for potential homeowners to do during this waiting period is to improve their credit. Making all payments on time and keeping balances low on credit cards will help to repair their FICO scores and prepare them for their next home purchase.
Posted on December 14th, 2012
During the third quarter of this year, short sales soared as underwater U.S. homeowners tried to get out before a helpful tax break expires before the end of the month.
During July, August and September of 2012, according to housing data company RealtyTrac, short sales – those where the home is sold for less than the remaining balance on the mortgage – rose 22 percent from the year before among homeowners who were behind on their payments, while short sales among those current on their loans increased 17 percent.
In a short sale, the bank agrees to forgive the remaining mortgage balance and the homeowner can then get out from under a home that was worth less than they owed. Banks often prefer short sales over foreclosures because although they still lose money, it is not as big a loss. Short sale homes right now sell for an average of $191,025 where foreclosed homes sold by banks sell for $161,954.
In addition to getting higher prices for the homes, in short sales banks also avoid the hassle and legal fees of foreclosure and maintaining the property.
The current law under the Mortgage Debt Forgiveness Act exempts homeowners from having to pay taxes on any debt forgiven in a short sales and with the average forgiven debt of $95,000, according to Daren Blomquist, vice president of RealtyTrac, that is a huge incentive to make these short sales happen.
The act is set to expire on December 31 and unless Congress changes that, some homeowners might soon have to pay as much as $33,250 on short sale debt forgiveness.
“If that law expires, homeowners who agree to short sales could see their income tax jump significantly because the portion of the unpaid loan balance not covered by the short sale proceeds will be considered taxable income in many cases,” Blomquist said in a CNN Money article. “Both lenders and at-risk homeowners are realizing that short sales are often a better alternative than foreclosure.”