So it may be no surprise that I get asked frequently about when or even if a person can qualify for a home loan after a derogatory credit event. I hope that this synopsis will serve as a guide – and really only a guide. Exceptions to the rules I am laying out do exist, so if in doubt, just call or send me an email to let me know your situation.

FHA Loans

• Forclosure (or Deed in Lieu of Foreclosure):  3 years from the date of the foreclosure, with re-established credit; and less time with extenuating circumstances
• Short Sale: 3 years from the date of the closed sale when the deed transferred to the new owner.  Here, one major exception applies.
• Chapter 7 Bankruptcy:  2 years from the date of the discharge of the bankruptcy, a borrower is eligible for a new FHA loan, so long as the borrower has maintained good credit since, with no derogatory items, and has re-established good credit
• Chapter 13 Bankruptcy: A borrower can be eligible for an FHA loan 1 year after the payout period has begun, so long as everything has been paid on time, and with court approval (which your lender, me, will help you to request and obtain).

VA Loans

• Foreclosure: 2 years from the date the foreclosure was complete.
• Other Circumstances: All other derogatory credit situations mirror the time-frames of an FHA loan.

USDA Rural Housing

• Chapter 7 Bankruptcy: 3 years from the discharge date.
• Other Circimstances:  All other derogatory credit situations mirror the time-frames an an FHA loan.

Conventional Loans

(Conventional Loans are loans the conform to Fannie Mae and/or Freddie Mac Guidelines)

• Foreclosure:  7 year from the date the foreclosure was completed (or, 3 years from the foreclosure date with extenuating circumstances and with 10% down payment.)
• Short Sale:  7 years from the date the sale was closed and the title transferred to the new owner for less than 10% down payment.
• Or, 4 years from the date the sale was closed and transferred to the new owner with 10% or greater down payment.
• Or, 2 years form the date the sale was closed and transferred to the new owner with 20% down payment.
• Chapter 7 Bankruptcy: 4 years from the discharge date.
• Chapter 13 Bankruptcy: 2 years from the discharged date.

All of these rules allow for shorter time periods from the derogatory event, given ‘extenuating circumstances’, such as extended job loss, death of a primary wage earner, etc.  The one event that does not count as an extenuating circumstance – and probably should given anyone who has experienced it – is divorce.  Pretty much any extenuating circumstance will require some documentation about the circumstances.

As always, call me if you have a scenario or a question that I can help with.  The good thing here is that many, many people think that a bankruptcy or a foreclosure will damage your credit for great lengths of time, if not forever.  That, I am happy to say, could not be further from the truth.  If you or someone you know has gone through a major derogatory credit event, then I would be happy to help you rebuild and get ready to buy a home when the time comes.

If I can help with any questions or with your next home loan, call me at 1-800-MY-LOANS (1-800-695-6267) or request a free rate quote.

Just remember: the key to all of this is re-building credit.  But that is topic for another day and another post.

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And you can get some of the best deals on short sales, even better than foreclosures, if you have the patience and the right professional team helping you navigate the process.

If you are interested in buying a metro Atlanta short sale home, then we are here to help.

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But what if the homeowner is in the right home; just in the wrong mortgage? The hassle and hearache of moving out and moving on can now be avoided. Enter, the Short Refinance FHA Loan.  The short refinance works exactly the same as a short sale with the exception that the homeowner remains a homeowner.

With a short sale, once an offer comes in it is presented to the bank along with an application package from the seller asking the bank to take a discount on the current mortgage.  Once the bank accepts the offer for less than what the seller owes the bank they have agreed to a short sale.  A short refinance works in much the same way as a short sale only in the case of a short refinance the “offer” presented to the bank is actually a copy of the homeowner’s brand new short refinance FHA Secure approval.  The short refinance approval, along with all the supporting documentation, is then submitted to the bank requesting a discount.  Once the bank accepts the discount, they have accepted a short payoff and agreed to a discount on the loan allowing for the short refinance.

A major benefit of the short refinance is that it allows borrowers to keep their homes.  The short refinance delights homeowners because they get a new start with a lower mortgage payment and a lower mortgage balance.

Why would the bank agree to a short refinance and not just foreclose on the property?  Simply put foreclosing on a property requires large amounts of legal fees and then the home is typically sold at a substantial discount off of the fair market value.  The short refinance allows the bank to avoid the majority of the legal fees and allows the new lender make its largest loan based on the fair market value.

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Truth be told, I have been right here, with you, weathering the same drop in home values and number of homes on the market that you have.  And, now that we are being honest, it has not been a lot of fun.  My own home is probably worth $100K less than it was two years ago.  And, I know, so is yours.

I was thinking of the latest in the investment banks to fall – Lehman Brothers – and then the thought occured to me:  what will all the job losses from Lehman, Merrill Lynch, Bear Stearns and others do to to housing market in and around New York City?

Not sure, but I would much rather be in Alpharetta, GA then in White Plains, being in the mortgage biz.

Here is an interesting stat, from the National Association of Realtors, that the Atlanta metro area has dropped an average of 9.8% since 2005.  New York has dropped a percent more, by 10.8%.

I’ll bet home values in NY will drop more precipitously in the coming months.

My thoughts go out to the 10′s of 1000′s who will lose their jobs up there in the New York area.  I hope some of those Yankees make there way down to Atlanta and find greener pastures.

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