Waiting Period For Mortgage After Short Sale Versus Foreclosure

This BLOG On Waiting Period For Mortgage After Short Sale Versus Foreclosure Was UPDATED On December 22nd, 2017

Waiting Period For Mortgage After Short Sale Versus Foreclosure Is Better To Qualify For Conventional Loans:

There are mandatory waiting period to qualify for government and conventional loans after the following:

  • Foreclosure
  • Deed In Lieu Of Foreclosure
  • Short Sale

Many folks who are finalizing their housing event and need to give up their homes often get confused about deed in lieu of foreclosure, foreclosure, short sale. There is a big difference on the three different types of housing events when it comes to qualifying for both government and Conventional Loans after housing event.  Short Sale is alternative to foreclosure and is much a better choice for homeowners losing their homes.

What Is A Short Sale?

A short sale is when a homeowner can only sell their home below the mortgage loan balance because the value of the home is lower than the mortgage.

  • A short sale is when a homeowner sells the property at a price below what he or she owes the mortgage lender with the lender’s blessing because they can no longer afford their monthly payments
  • A short sale alternative to foreclosure and homeowners who can no longer afford their mortgage payments should consider a short sale
  • There are cases where homeowners who are not delinquent on their mortgages qualify for short sales
  • This is because they have overextended themselves or have lost their jobs
  • Other situations is because they had major reduction on their household incomes where they can no longer keep up with their current home loan payments

Short Sale Is Alternative To Foreclosure: How Do You Qualify For A Short Sale?

In order for a homeowner to be able to do a short sale, they need the mortgage lender’s approval and acceptance.

  • By agreeing to a short sale of a homeowner, the mortgage lender is willing to accept less than the current balance of the mortgage loan borrower’s mortgage balance and take the loss without going after the deficit against the homeowner
  • Not all mortgage lenders will offer their mortgage loan borrower short sale approvals
  • A mortgage lender can opt to foreclose instead

Consult With Accountant Prior To Short Sale

Before pursuing a short sale, make sure to consult with an accountant or attorney so homeowners will not get stung by the Internal Revenue Service for being taxed on the debt forgiveness by the mortgage lender.

Short Sale Is Alternative To Foreclosure And Short Sale Process

Every mortgage lender has their own short sale processing system.

  • In general, if homeowners  have made up their mind that doing a short sale on the home is the route to take, homeowner need to contact the mortgage lender and speak with an agent
  • Take notes when talking to the lender: Document the date, the time, and notes of the conversation
  • Homeowners may get transferred from one department to another 
  • The mortgage lender representative will probably require short sale applicants to write them a letter of explanation on why they are seeking a short sale
  • Homeowners will probably need to write a letter of hardship that they can no longer afford the home due to extenuating circumstances such as a loss of business, loss of job, or medical reasons
  • The mortgage lender will also require that borrowers provide them asset, debt, and income information along with recent bank statements

Short Sale: Market Value Of Home

Most homeowners who seek a short sale on their property is due to the fact that they cannot sell their properties because the mortgage balance is higher than the market value of their property.

  • Homeowners will need to provide a market analysis of their property which any real estate agent can help 
  • Homeowners can provide a recent appraisal of their property, it will even be better
  • However, homeowners will most likely have to pay for the appraisal
  • Once homeowners get the approval from the mortgage lender for the short sale, they can then list their  property with a realtor

Listing Property And Real Estate Purchase Contract

Once the property has been listed and get a real estate purchase contract from a potential home buyer, the contract will need to presented to the lender for approval or counter offer:

  • Mortgage lender will be the party who decides to accept the offer or not
  • Once short sale is finalized, waiting period will start for homeowner to qualify for another mortgage loan
  • Waiting period after a short sale for a FHA insured mortgage loan is 3 years from the date of the settlement statement
  • For a conventional loan, there is a four year waiting period to qualify for mortgage after the date of the short sale 

Qualifying For Government Mortgage After Short Sale Versus Foreclosure

All government loans (FHA, VA, USDA) treat short sale, foreclosure, and deed in lieu of foreclosure the same when it comes to qualifying for home loans after housing event.

  • However, short sale is the best route to go
  • Reason being is the waiting period requirement to qualify for government loans after short sale is three years (VA Loans is 2 year waiting period after short sale, deed in lieu, foreclosure) from the short sale date
  • However, the waiting period clock does not start until the foreclosure and/or deed in lieu of foreclosure has been recorded
  • If the lender grants a deed in lieu of foreclosure, it may take months or years before it is recorded and transferred out of the borrower’s name
  • Same with foreclosure
  • After the property has foreclosed, it may take some time before it is recorded out of the homeowners name
  • The waiting period will not start until the date the homeowners name has been transferred out of the deed of the property
  • With short sales, the waiting period clock starts the minute the property has been sold reflected on the Closing Disclosure (CD)
  • This is the reason why qualifying for mortgage after short sale versus foreclosure is much beneficial for those who will want to purchase a home at a later date

Qualifying For Conventional Mortgage After Short Sale Versus Foreclosure

Fannie Mae and Freddie Mac are the two mortgage giants that sets mortgage guidelines on Conventional Loans. Fannie Mae and Freddie Mac have different waiting periods for mortgage after short sale versus foreclosure.

  • There is a four year waiting period after short sale to qualify for conventional loans
  • There is a seven year waiting period after recorded date of foreclosure to qualify for conventional mortgages
  • There is a four year waiting period after deed in lieu of foreclosure to qualify for conventional home loans

Fannie Mae and Freddie Mac classifies short sale and deed in lieu of foreclosures differently than standard foreclosure.

Home Buyers who need to qualify for mortgage with a direct lender with no lender overlays can contact 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, evenings, weekends, and holidays.

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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