Mortgage After Short Sale Versus Foreclosure Waiting Period Guidelines

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Mortgage After Short Sale Versus Foreclosure Waiting Period Guidelines

This BLOG On Mortgage After Short Sale Versus Foreclosure Waiting Period Guidelines Was UPDATED And PUBLISHED On September 4th, 2019

Mortgage After Short Sale
Gustan Cho Associates

 

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

There is 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 in 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.

In this blog, we will cover and discuss Mortgage After Short Sale Versus Foreclosure Waiting Period Guidelines.

What Is A Short Sale?

What Is A Short Sale?

A short sale is when a homeowner can only sell their home below the mortgage loan balance. This often needs to be done 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 their lender
  • This is done with the lender’s blessing
  • This is because they can no longer afford their monthly payments
  • A short sale alternative to foreclosure
  • 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 are 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?

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

Consult With Accountant Prior To Short Sale

Why 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 lender.

Short Sale Is Alternative To Foreclosure And Short Sale Process

what is Short Sale Is Alternative To Foreclosure And Short Sale Process

Every 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
  • The homeowner needs to contact the 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 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 a job, or medical reasons

The lender will also require that borrowers provide them an asset, debt, and income information along with recent bank statements.

Short Sale: Market Value Of Home

what is 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

what is 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 present to the lender for approval or counter offer:

  • The mortgage lender will be the party who decides to accept the offer or not
  • Once the short sale is finalized, the waiting period will start for homeowner to qualify for another mortgage loan
  • The waiting period after a short sale for an 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 a mortgage after the date of the short sale 

Qualifying For Government Mortgage After Short Sale Versus Foreclosure

How 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, a short sale is the best route to go
  • The reason being is the waiting period required to qualify for government loans after a short sale is three years (VA Loans is a 2-year waiting period after a 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 homeowner’s 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 a 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

what is Qualifying For Conventional Mortgage After Short Sale Versus Foreclosure

Fannie Mae and Freddie Mac are the two mortgage giants that set mortgage guidelines on Conventional Loans. Fannie Mae and Freddie Mac have different waiting periods for a mortgage after short sale versus a 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 a mortgage with a direct lender with no lender overlays can contact The Gustan Cho Team at Loan Cabin at 262-716-8151 or text for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays.

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