With more than a few years having passed since the beginning of the mortgage meltdown in 2006, and the years that it has taken to run its course thus far, there are many potential homebuyers who have lost their homes, rented for a time, and are now looking for a home of their own again.
With different loan programs having different stipulations as to who can buy what and when, this basic primer will give an insight as to what you can expect when getting back on that proverbial horse. Of course, a lender will be the final authority, but this guide will help you to have some insight into the nuts and bolts of the process.
In terms of one’s abilities to purchase a home after a financial crisis, in order from least to most impacted are bankruptcies, then short sales, then foreclosures. The values listed below are general guidelines, and lenders often times have their own waiting periods.
With much more liberal guidelines than its Conventional mortgage counterpart, the FHA program will allow buyers to buy sooner, though the program is more expensive because of its mortgage insurance rates. Lower credit scores are required however, making it a more attractive proposition for many buyers.
FHA, in looking at borrowers who have had a short sale, would want to know if they were in default at the time that the short sale took place. If they were, then they are going to wait three years to purchase. If they weren’t in default on their mortgage, or any of their other installment debt, then the lender may shorten this time frame if buyers can prove extenuating circumstances that are unlikely to recur.
As far as foreclosures are concerned, FHA has a minimum waiting period of three years, but this may change at some point in the future in order to keep new buyers coming into the market.
Fannie Mae buyers are looking at a minimum of a two year wait, at which time they would be able to put down 20%. After four years, they can put down 10%. To have no restrictions of any kind as far as purchasing goes, buyers are waiting a full seven years. Freddie Mac has a minimum of a four year wait.
Extenuating circumstances that caused the foreclosure may have some impact, but foreclosures are often huge losses for lenders, and rightfully so they are leery about having borrowers go back into that same situation.
Part of what lenders are trying to do, as with people that habitually file bankruptcy when they are able, is to avoid the cycle of purchase – default – purchase.