3/02/2012

Which is Better, A Longer or Shorter Turnaround Time For the Distressed Owner? Or, Buying. After a Short. Sale

Do you picture yourself here someday? or someplace like this?
I can't guarantee anything, but the likelihood that your life will turn better faster might be greater if you consider how quickly you (or someone you know) can shorten the time it takes to obtain a loan in the future.

Many people have friends and family members struggling with their situation, and all too often, they think foreclosure and/or bankruptcy are their best avenues--when they haven't really gotten all the information they could yet.  If you know someone like this, please share these guidelines with them because they can make a big difference for them in the future for the next several years:

  • FHA loan -- After a foreclosure, pre-foreclosure, short sale, or a deed-in-lieu, a homebuyer may obtain an FHA loan 3 years after the date of the event. The FICO score requirement today is about 620-640. (There may be exceptions to this time period, if you can prove the default was beyond your control.)
  • VA loan--After a bankruptcy, foreclosure, deed-in-lieu or short sale, a homebuyer may be able to obtain a VA loan 2 years later, with re-established credit.
  • FHA loan & Bankruptcy--After a Chapter 7 bankruptcy, a buyer may be able to obtain an FHA loan 2 years later, with re-established credit. Chapter 13 requires 1 year of payout and court approval for a mortgage.
  • Conventional loan -- After a pre-foreclosure sale/short sale or deed in lieu, a conventional loan requires 2 years from the completion date to get a 20% down loan, 4 years from completion to get a 10% down loan, and 7 years to obtain maximum financing loans. 
  • Conventional loan and foreclosure--It takes 7 years to obtain a conventional loan, and re-established credit.
  • Conventional loan & Bankruptcy--Chapter 7 requires 4 years, and re-established credit; Chapter 13 requires 2 years with a discharged BK, and 4 years with a dismissed BK. There can be no 30-day lates in previous 12 months.
Finally, a foreclosure stays on the credit report for 10 years, for all employers, insurance companies and others investigating your credit worthiness to see, regardless of how you've moved on.  A short sale's impact on your credit rating may be considerably less severe over a shorter period of time due to type of entry made, short sale negotation with the bank and depending on the policy of the servicer/investor.

Not all short sale situations succeed, unfortunately, and there are many reasons for this. However, banks would still prefer to do a short sale than a foreclosure: they don't want REO inventory, and they almost always recoup more money doing a short sale.

The banks come out ahead, and so do you, if you can do a short sale.  Doesn't it make sense to choose the option that would allow you to become a homeowner faster in the future, as well as the option that would have less impact on your long-term credit? And then someday you could be back here again--sooner.

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