Qualifying For FHA Loan After Short Sale And Foreclosure

This BLOG On Qualifying For FHA Loan After Short Sale And Foreclosure Was UPDATED On December 27th, 2017

Homeowners with a prior short sale can qualify for a FHA Loan After Short Sale And Foreclosure as long as they meet the mandatory waiting period after the short sale and re-established credit.

  • Most mortgage lenders do not want to see the mortgage loan borrower with any late payments or derogatory credit after their short sale and foreclosure
  • Lenders do expect re-established credit and at least three credit tradelines that has been seasoned for at least 12 months
  • To qualify for a FHA Loan After Short Sale And Foreclosure, the mortgage borrower needs to wait three years from the date of the short sale or recorded date of foreclosure and/or deed in lieu of foreclosure
  • Just because someone has waited out the 3 year mandatory waiting period after short sale and foreclosure does not automatically qualify borrowers for FHA Loan After Short Sale And Foreclosure
  • We will cover more on qualifying for FHA Loan After Short Sale And Foreclosure in a later paragraph

What Is A Short Sale Versus Foreclosure?

A short sale is when a homeowner has a home that is worth less than amount of the balance of their mortgage loan. With short sales, borrowers will get mortgage lender’s blessing to sell their home below what they owe and in lieu the mortgage lender will not come after the homeowner for the deficiency.

  • Just because homeowner owns a home that is worth less than the amount of mortgage balance does not automatically guarantee that mortgage lender will approve a short sale
  • There is a process involved with getting a short sale approved by mortgage lender
  • Mortgage lender will want to see homeowners financials
  • Lenders also want to see that homeowners are financially distressed and cannot afford mortgage payments either due to loss of employment, new employment with less pay, or other extenuating circumstances such as divorce or medical issues
  • Homeowners who have plenty of assets, solid income and good credit thinking of short sale just because the home is underwater, mortgage lenders will most likely not approve short sale 
  • A short sale process takes time
  • Most short sale homes take much longer to close
  • Everything from pricing and listing home, to purchase offers, to the mortgage approval process all need the mortgage lender approval on short sales
  • If the home buyer of the short sale home needs an extension to the closing date, the seller of the home has no say so and needs the mortgage lender’s approval
  • Mortgage lenders who own the home do not get back right away
  • Mortgage lenders normally take their time
  • Normal real estate purchase short sale transactions take 90 plus days to close
  • However, with short sales, closings can take 3 to 6 months if not longer due to the red tape of the mortgage lender

Getting Pre-Approved For FHA Loan After Short Sale

As mentioned earlier, mortgage borrowers need to meet the mandatory three year waiting period after a short sale to qualify for a FHA Loan After Short Sale And Foreclosure

  • However, just waiting out the mandatory three year waiting period after a short sale does not automatically qualify borrowers for a FHA Loans
  • FHA mortgage lenders want to see re-established credit after short sale and no late payments after short sale and foreclosure
  • For example, homeowners who had a short sale three years ago and had several late payments in the past 12 months recently, this can present an issue with getting an approve/eligible per Automated Underwriting System (AUS)
  • Mortgage lenders understand that consumers go through periods of bad credit due to extenuating circumstances such as unemployment, loss of business, divorce, or medical reasons
  • But people that go through tough financial times do recover and what mortgage lenders want to see from mortgage loan borrowers when they recover is that they have re-established credit and are making their monthly credit payments on time
  • One thirty day late payment on a consumer’s credit report can plummet their credit scores at least 50 or more FICO points and that late payment history will stay on their credit report for a period of 7 years

Is There Anything I Need To Worry About Qualifying For FHA Loan After Short Sale And Foreclosure?

As long as borrowers have passed the mandatory three year waiting period after short sale and foreclosure, have solid full time employment with verifiable income, at least a 580 FICO credit score, no late payments after short sale and/or foreclosure, and re-established credit after short sale, home buyers should not be concerned. Borrowers should definitely qualify for a FHA Loan. Home Buyers are looking for a FHA mortgage banker with no lender overlays, please contact us at The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are available 7 days a week, weekends and holidays as well. You can also go APPLY ONLINE by clicking APPLY NOW . USA Mortgage is a direct lender with no lender overlays on government and conventional loans.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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