Buying a Home after a Short Sale or Foreclosure

The National Association of Realtors states that about a million of the whopping 9.2 million Americans who lost their homes to foreclosure or short sales between 2006 and 2014 are already homeowners again.

Truth be told, it’s not easy to get a loan once you’ve been foreclosed or been through a short sale. But it’s not impossible either.  Like many other things in life, it takes time and hard work.  Here’s what you need to know to make it happen:

  1. Your credit is very, very important. Try to build up your credit. For a conventional loan, you will need a minimum credit score of 620. For an FHA loan, that number drops to 580.
  2. Make payments on time. Again, this is key for lenders. Your lender may look to see how often you pay bills on time.
  3. Keep tabs on your paperwork for everything financial – bank statements, tax returns, business bank statement, pay stubs, bills. If it has a number on it, keep it. Lenders ask for a lot of documentation, and failing to provide it in a timely manner will stall your mortgage. Be prepared.
  4. You will need a stable job. The lender doesn’t want to have to worry about where the next mortgage payment is coming from.
  5. You may think your credit is a lot better than it actually is. If you go online and pull up your credit report, you see something fairly basic. Many lenders, on the other hand, often see a credit report that is far more detailed, with a lower credit score than what you see.
  6. If you’re looking for a conventional mortgage, in addition to all of the above, you will have to wait seven years after your short sale or foreclosure was done. However, if you can demonstrate that your foreclosure or short sale was the result of a severe hardship (like a death or serious illness), you may qualify to shorten the waiting period to three years.
  7. If you’re trying to get an FHA loan, you only have to wait three years until after your foreclosure or short sale. This time frame can be reduced to one year if you can show that a severe hardship, such as a death or illness, caused the foreclosure or short sale.
  8. If you’re applying for a VA loan, you only have to wait two years. The time frame is reduced to one year for situations in which there were severe hardships similar to those listed in paragraphs 6 and 7 above.
  9. On top of everything else, your lender may have requirements of their own that you will have to work through!

But all of these things are doable. The National Association of Realtors says at least a million homeowners have already done it.  In fact, I have quite a few clients who have done it too.  It’s time to get past that foreclosure or short sale and move on!