What with the millions of former homeowners sitting around twiddling their thumbs following foreclosure or a short sale, many of them might be wondering how soon they will be able to get back into the real estate business.
One article that recently caught our attention in the New York Times attempted to answer that question, coming to the conclusion that there are all kinds of conditions to consider following what it terms a “significant derogatory event”, i.e. foreclosure.
One thing that the New York Times noted was that those whose homes were foreclosed will most likely face a much more substantial wait than those who got out early with a short sale.
Fannie Mae and Freddie Mac stipulate that persons who had their homes foreclosed must wait a minimum of three years before being able to apply for credit with them again, while those who went for a short sale only need to wait two years. There can be extenuating circumstances however, and if borrowers are able to show how they were extremely unfortunate, and if they had a good financial track record in the past, they may be able to shorten the time they have to wait.
On the flip side however, those who cannot prove any misfortune may well face an even longer wait than the minimum three years – with some being forced to wait as many as seven years, or four years if they went bankrupt.
Those who take out a loan that is covered by the Federal Housing Administration, and have a perfect credit record after borrowing the money, will also be eligible to buy again three years after a foreclosure, or just two years following a declaration of bankruptcy.
For those previous homeowners who were forced into a short sale, they will be able to secure a new FHA loan after three years, in most cases. As always, there are exceptions to this rule. The three year stipulation is supposed to be for borrowers who were defaulting on their homes at the time they initiated a short sale. For those borrowers who always managed to stay above water, that is, keep up with their payments, one year before they decided to short sale, they may actually be able to take out a new FHA loan right away.
The trick it seems, if you want to get back on the property ladder as soon as you can, is to steer clear of foreclosing, says Fannie Mae’s Andrew Wilson. “Avoiding foreclosure means you become eligible again in a much shorter time,” he told the New York Times.