How Long to Wait to Buy After Foreclosure or Other Negative Event

According to The State of the Nation's Housing 2015 report published by Harvard University, "Up to 1 million households who lost their homes to foreclosure have already restored their credit standing, making them again eligible for FHA and other mortgages, and 1.5 million more could do so shortly."

Return buyers are coming back into the market, and will continue to do so, but one of the problems is, many buyers out of the millions who were foreclosed upon between 2008 and 2014 are not aware of the guidelines under which they may repurchase. Plus, many buyers are under the impression that all purchases for owner occupied mortgages require a 20% down purchase.  This is not a mandatory requirement but depends on which kind of loan being applied for, and how long it's been since the negative event was concluded in the past. Briefly, FHA loans allow for a minimum of 3.5% down, VA has similar program, and conventional loans may be 5%-10% down and offer different interest rates and scenarios for the buyer.  Twenty percent down loans are great to have, but many people cannot meet that level, so please understand there are other options.

A lot of buyers who suffered a financial hardship in the past are genuinely surprised when they realize that the FHA or VA loan allows them to purchase again after just 1-3 years, depending on circumstances. Let’s take a look at the 2016 mortgage waiting periods:

AFTER FORECLOSURE:
Conventional loan:  Close of escrow, meaning new loan date, must be 7 years from foreclosure date.  And, under a new rule, if you included the foreclosure in a bankruptcy, you can qualify after 4 years instead of 7 years. Contact your lender for more details on how to qualify under this new rule.

FHA  It is 3 years before you can repurchase again using FHA financing. Contact your lender to find out how you may quality after just one year (this means meeting "special circumstances" which fewer borrowers will be able to meet).

VA.  It is only 2 years before you can repurchase again using VA financing.

AFTER A SHORT SALE:

Conventional.  It is 4 years before you can repurchase again using Conventional financing.
New Rule: There was a new change implemented recently (see below), whereby if you included the short sale in a bankruptcy 13, you can qualify after 2 years instead of 4 years.

FHA. It is 3 years before a buyer can repurchase again using FHA financing. But there are 2 less commonly used ways to help you qualify in less than 3 years if you can meet them under suffering an "economic event" as defined by FHA.  Contact your lender for more information on this, but be aware that showing loss of income and other events must be documented and approved in the loan.

VA. It is only 2 years you can repurchase again using VA financing.

AFTER BANKRUPTCY:
Here are the current 2016 waiting periods when you can purchase or refinance again after a Bankruptcy and want to obtain either Conventional, FHA or VA financing.

Conventional. For a chapter 7 Bankruptcy it is 4 years and 2 years for a chapter 13 bankruptcy, before you can repurchase again using Conventional financing.

FHA. For a chapter 7 Bankruptcy it is 2 years and 1 year for a chapter 13, before you can repurchase again using FHA financing. Or, see above for how you can qualify again after just 1 year if you experienced an economic event.

VA. For a chapter 7 Bankruptcy it is 2 years, and 1 year for a chapter 13 bankruptcy, before you can repurchase again using VA financing.

Another option if you want an alternative to these guidelines, is a portfolio lender (a loan that is not  re-sold on the market after close of escrow), which may be an option, but there may be higher loan rates.

To find out your eligibility, I can help you with finding resources to doublecheck on dates, so please contact me, or, contact a lender if you know one who is well-versed in these guidelines, to find out your eligibility for a mortgage.

Financing Energy Efficient Property Improvements via the HERO Program (aka PACE)

The clue to how these programs work when purchasing qualifying energy efficient improvements is in the name:  Property Assessed Clean Energy (PACE).  These particular programs are NOT loans or leases, they are County-approved financing programs whereby a bond is issued to the lender for projects permanently affixed to a property, repaid through property taxes.  Homeowners repay financing annually through an assessment on their property tax bill.  The projects could be solar panels, windows, doors, air conditioning and heating, to name a few.

While the attraction is in the no-money down for specific residential improvements (there are commercial programs as well),  the prospective customer should read the fine print before purchasing.  Under these HERO/PACE programs, the are liens placed on the homeowner's real estate tax bill which, because it's a property tax assessment, takes priority over a home loan. Should the homeowner wish to sell or re-finance, be aware that FNMA and Freddie Mac--source of most conventional mortgages--are prohibited by the Federal Housing Finance Agency from purchasing a mortgage loan on that property until the entire lien is paid off or does not have priority over a first mortgage lien.  (FYI:  most mortgages are sold to those entities.)   Here are additional words of warning from Kevin Nunn, a lender in the Sacramento area:

If the system is owned make sure it is not financed through one of the PACE programs that are being promoted right now. Homeowners are led to believe these “assessments” will just transfer over to a new buyer. Fannie Mae and Freddie Mac have been very clear that they will not purchase a loan with these “assessments” in place. It often comes as a very big surprise to owners and Realtors that the PACE must be paid off or they may only be able to sell to a cash buyer.

 On a Los Angeles County property tax bill, the lien assessment would be located under "Direct Assessments" section.  Some examples of how the assessment will appear are WRCOG Hero, LACEP RES PACE, LACEP RES 2016, LACEP COMM or California Hero to name a few.

If the homeowner stops making property tax payments, the assessment becomes a priority lien in front of a new first trust deed.  Also, when selling, the seller under California Association of Realtors purchase contracts, is required to make a disclosure to the buyer during escrow of any type of lien or lease of equipment on the property.  As an involuntary lien, it will also show up on a preliminary title report passed to the buyer during escrow, at which point the buyer may decided he/she doesn't want to pay an annual $3000.00 assessment in addition to regular property taxes.  

The seller or buyer may pay off the lien before close of escrow  (assuming the buyer is willing and able), or the amount may be split between them.  

While these programs have been most popular in the Inland Empire, they are now approved in Los Angeles County and almost all cities in  LA County, including Long Beach.  

However, there are other owned or leased equipment programs which are in place based on different criteria, and may be less complicated than those under HERO/PACE programs, so be sure to check the difference.

Down Payments and PMI: Get the Facts

If you're in the market to buy a home, your down payment is likely top of mind. And no doubt you've heard the rule of thumb that you shouldn't buy a home unless you can put 20% down. Before accepting this myth, it's important to do your homework, weigh the pros and cons regarding your down payment options and get the facts, such as:

• A growing number of borrowers are putting down between 5 and 10%.
• Today, you can put down as little as 3% through mortgage options like the Freddie Mac Home Possible AdvantageSM mortgage.

It's a fact that the more you put down, the lower your monthly mortgage payment will be and the less you'll owe the bank. It's also a fact that homebuyers who put at least 20% down don't have to pay Primary Mortgage Insurance (PMI), an added insurance policy that protects the lender if you are unable to pay your mortgage. However, if putting 20% down is not an option or will deplete all of your savings and leave you with no financial cushion, it's probably not in your best interest.

While you'll have to pay PMI for a conventional loan with a down payment of less than 20%, you'll still be able to take advantage of today's low mortgage rates – especially the 30-year fixed rate mortgage that can offer you security and peace of mind throughout the life of your loan.

Plus, once you've built equity of 20% in your home, you can cancel your PMI and remove that expense from your monthly payment.

THE MATH: $200,000 HOME – 5% Down vs. 20% Down

	5% DOWN PAYMENT	20% DOWN PAYMENT
Down Payment	$10,000	$40,000
Loan Amount	$190,000	$160,000
Mortgage Type	30-year fixed-rate	30-year fixed-rate
Interest Rate	4.5%	4.5%
Monthly Mortgage Payment (Principal and Interest)	$962.70	$810.70
PMI	$80.75*	$0
	$1,043.45**	$810.70**

*Assuming an insurance rate of 0.51%; this cost can be cancelled from your payment once you reach 20% equity in your home for conventional loans.
**Does not include property tax and homeowners insurance payments

Carefully evaluate your finances to determine how much you can afford and talk with your lender or housing professional about down payment options that make best sense for you.