In the past decade, thousands of people living in the Quad Cities have gone through a foreclosure, short sale, or bankruptcy. While each is very difficult and all are drastic steps to take, they are sometimes necessary for people to become financially stable and economically productive in the future. Sometimes, taking a step or two back allows you to move forward on a new path. During the recovery process from one or more of these events, the question inevitably arises: When will you be able to buy a home again? With housing prices down by as much as 50 percent from the peak of the market, this question is arising more and more frequently. While the answer varies depending on the details of the individual situation, here are a few basic guidelines to follow:
Foreclosure: If you’ve experienced a foreclosure, you cannot obtain new financing on a primary residence for at least three years after the foreclosure filing.
Short Sale: The rules on short sales are not as well defined. Up until recently, specific rules to address short sales were not even a part of lending guidelines and the current guidelines are subject to change. Technically, some loan programs allow you to obtain a new loan immediately after a short sale IF you never missed a payment AND the lender does not require you to pay back any additional amount you owe on the loan. While this is technically allowed, meeting the other credit requirements to be approved for a new loan so soon after a short sale is highly unlikely. In most cases, it will be two or three years before someone can get a new mortgage after a short sale.
Bankruptcy: The rules on bankruptcy depend on what type of bankruptcy is filed. For a Chapter 7 Bankruptcy (straight bankruptcy or liquidation), you will need to wait at least two years after the bankruptcy is discharged by the courts. In the case of a Chapter 13 Bankruptcy (debt reorganization), you need to show 12 months of on-time payments towards the bankruptcy.
If a home lost to a foreclosure or short sale was a rental property, or if the new home being purchased is not a primary residence, longer time lines and more challenging criteria apply. It is possible to be better off in the future, and indeed, the intent of going through one or more of these events is to ensure a better future. One of the most important things to remember, however, is that waiting out the timeline to try to qualify again is, by itself, not enough. Borrowers who have gone through a foreclosure, short sale, or bankruptcy are scrutinized more closely than borrowers who have not. Showing your hard financial times in your past is important. Even more important is showing reestablished, new credit with a clean history. Cleaning up old derogatory credit and establishing a new, clean credit history takes time and expertise. I highly recommend consulting with a professional credit repair consultant or a lender specifically trained in how to address credit issues at least one year prior to considering a new home purchase. If you would like information on how to clean up and reestablish good credit, please feel free to give me a call. QCBN
By Theron Wall, Wallick & Volk Mortgage Brokers