Mortgage Loan After Foreclosure And Short Sale

Mortgage Loan after Foreclosure and Short Sale Guidelines

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers qualifying and getting pre-approved for a mortgage loan after foreclosure and short sale guidelines.  Previous homeowners who had a prior foreclosure can now qualify for a mortgage loan after foreclosure and short sale. There is a minimum of a 3-year waiting period to qualify for FHA and USDA loans after foreclosure, deed-in-lieu of foreclosure, and short sale from the date of the sheriff’s sale. Ronda Butts, a dually licensed realtor and loan officer, explains about getting approved for a mortgage loan after foreclosure as follows:

To qualify for a conventional mortgage loan after foreclosure is seven years which is substantially longer than FHA, VA, or USDA loans. However, the waiting period shortens to four years for a conventional loan after a deed-in-lieu of foreclosure or short sale.

The waiting period start date is when the deed was transferred from the homeowner’s name into the mortgage lender’s name and recorded. There is a two-year waiting period to qualify for VA loans after foreclosure, short-sale, deed-in-leu, and Chapter 7 Bankruptcy. This blog will discuss qualifying for a mortgage loan after foreclosure and short sale guidelines.

Waiting Period For a Mortgage Loan After Foreclosure Start Date

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The waiting period start date is not when homeowners turn in the keys to the lender. Just because the waiting period has passed from the date the homeowner turned in keys to the bank does not mean that date is the effective start date of the waiting period.  It has to be the date that the deed of the house was transferred out of the homeowner’s name and into the mortgage lender’s name and recorded on public records.  That recording date is the effective date, and the clock starts effectively on that date of the waiting period.

Earliest Qualifying Date For Conventional Mortgage Loan After Foreclosure

Previous homeowners who had a prior deed-in-lieu of foreclosure or a short sale can qualify for a conventional mortgage loan after four years from the date of the sheriff’s sale or the date the deed was transferred out of their name into the name of the mortgage lender and officially recorded at the county recorder of deeds.  There is a seven-year waiting period after the recorded date of a standard foreclosure to qualify for conventional loans. Conventional loans have different waiting period requirements after foreclosure versus short sale and deed-in-lieu of foreclosure.

Conventional loans require a 5% down payment on the new home purchase. First-time homebuyers can qualify for conventional loans with a 3% down payment. Fannie Mae and Freddie Mac define first time homebuyers for buyers who did not have ownership on a home in the past three years.

Conventional loan borrowers must remember and realize that the waiting clock does not start until the deed is fully transferred out of their name and into the name of the mortgage lender and officially recorded at the county recorder of deeds office, signed, stamped, and dated. The above program is for only conventional mortgage loans.  FHA and USDA treat foreclosures, deed-in-lieu of foreclosures, or short sales all the same, and it is the regular three-year waiting period. VA loans require a 2-year waiting period after Chapter 7 Bankruptcy, foreclosure, deed-in-lieu of foreclosure, and short sale.

Recorded Date Versus Surrendered Date For Mortgage Loan After Foreclosure

Recorded Date Versus Surrendered Date In Qualifying For Mortgage Loan After ForeclosureThe effective date that the foreclosure waiting period is over to qualify for a mortgage loan is three years from the recorded date when the name of the deed was transferred out of the homeowner’s name and not the mortgage release date. Many folks think that just because they have a mortgage release at a certain date, that is the effective date. That is not the case.  It is the date when the mortgage release was recorded with the clerk of the county recorder’s office.

Update on Conventional Loan After Deed-in-Lieu of Foreclosure or Short Sale

The 2-year waiting period after a deed-in-lieu of foreclosure or short sale with a 20% down payment to qualify for a conventional loan is no longer in effect. Fannie Mae has changed the waiting period to four years after a deed-in-lieu of foreclosure or short sale. Getting approved for a conventional loan after deed-in-lieu of foreclosure or short sale does not affect the down payment requirements, says Dale Elenteny:

Down payment requirements are a 5% down payment to qualify for a conventional loan. 3% down payment is required for first-time home buyers. First-time Homebuyers are someone who has not owned a home in the past three years.

Another positive change with Fannie Mae mortgage lending guidelines is that if a borrower had a mortgage as part of Chapter 7 bankruptcy, the waiting clock starts from the date of the discharge date of the bankruptcy, not the recorded date of the foreclosure. The foreclosure can be recorded at a later date.

This Article On Mortgage Loan After Foreclosure Was UPDATED On June 26th, 2023

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