Buying a home again after a short sale or foreclosure

Buying a Home Again
After a short sale or foreclosure
by Rhonda Porter
Washington State Licensed Loan Officer MLO-1213241
Mortgage Master Service Corporation CLA 40445

• Senior Loan Officer at Mortgage Master Service
Corporation , where she’s been employed since
April 2000.
• Licensed Mortgage Originator MLO121324 for
homes located in Washington State
• Author of nationally recognized blog, The
Mortgage Porter
• Interviewed by NPR, Seattle Times, MSN
Money, WSJ Market Watch.
• 2012/2011 WAMP Outstanding Loan Originator
finalist
• Lives in Seattle area with hubby, three kids (off to
school), flat coated retriever and kitten
• Enjoys cooking and painting on black velvet (in her
spare time)

Boomerang Home Buyers
www.mortgageporter.com | @mortgageporter | Facebook | Google + | Yelp | Rate Quote
Realty Trac reports that since the housing
crisis, 4.8 million have lost their homes to
foreclosure, and another 2.2 million gave up
their homes with a short sale.
Some of these former home owners are
venturing back into the housing market to
see if they can buy home after having a
couple years beyond their short sale or
foreclosure.
These buyers are often referred to as
"Boomerang Buyers" and many are eager to
start over and buy a home again.
Boomerang Buyers may qualify to buy their
next home as long as they have
reestablished good credit and have strong
employment. Programs like FHA, VA or USDA
allow financing 2-3 years following a short
sale or foreclosure to qualified borrowers.

WHEN CAN I BUY AGAIN?
Derogatory Wait Times
Short Sale
FHA:
No waiting period if all mortgage and installment debts were paid on time for 12 months preceding the
short sale OR 3 years from date of sale if borrower was delinquent at time of sale OR if the previous
mortgage was FHA.
Fannie Mae: *2 yrs @ 80% LTV; 4 years @ 90%LTV
Freddie Mac: 4 years
VA: Typically treated the same as a foreclosure.
USDA: 3 Years
Foreclosure or Deed-in-Lieu
FHA: 3 Years
Fannie/Freddie: 7 Years
VA: 2 Years
USDA: 3 Years
Some Short Sales are considered "pre-foreclosure" depending on what was reported to the credit bureaus.
Also - some "loan mods" are considered pre-foreclosure if done for reasons of financial distress.
Extenuating circumstances may help reduce time wait periods.
Lender underwriting overlays do apply as well. *Currently I'm having a difficult time finding lenders who
will do conventional as early as two years following a short sale despite guidelines.

Bankruptcy
Chapter 7 or 11
FHA: 2 Years
Fannie Mae/Freddie Mac: 4 years
VA: 2 Years
USDA: 3 Years
Bankruptcy
Chapter 13
FHA: 1 year with 12 months satisfactory payments to trustee with permission from the court.
Fannie/Freddie: 2 yrs from discharge date/4 yrs from dismissal.
VA: 1 year with 12 months satisfactory payments to trustee with permission from the court.
USDA: 3 Years
Extenuating circumstances may help reduce time wait periods.
Multiple bankruptcies may add to waiting periods.
Lender underwriting overlays do apply as well.

What about an
“extenuating
circumstance”?
Lenders may allow for a short "wait period" if you have what is considered an acceptable "extenuating
circumstance" that contributed to the short sale or foreclosure.
The circumstance must have been out of the borrowers control and not due to financial mismanagement.
In order to qualify for this exception, they may need to be able to show documentation of the
circumstance.
Examples of an extenuating circumstance may include:
death of a wage earner
medical issues/long term illness
Lenders typically do not consider the following as extenuating circumstances:
•the recession/economy
•divorce (possible exception of spouse was awarded the property and mortgage was current at the time
of the divorce)
•loss of employment/wages
If you think you have an extenuating circumstance, you may want to review it with your mortgage
originator.

Wait Periods
with extenuating circumstance
Short Sale
Fannie Mae: 2 yrs @ 90% maximum loan to value
Freddie Mac: 2 years
FHA/VA/USDA: have the same wait periods with or without an extenuating circumstance
for a short sale
Foreclosure or Deed-in-Lieu
FHA: Possible with full documentation
of circumstance and credit re-established
Fannie/Freddie: 3 Years
VA: 1 Year
USDA: 3 Years (same as without
an extenuating circumstance).

Getting Ready to Buy Again
What to do in the “waiting period”
Don't wait to start working on re-establish your credit. Lenders are going to want 3-4
established tradelines in good standing after a derogatory event. You do not need to open new
credit if you already have established credit. And do not close accounts of good established credit.
Review credit report for accuracy and to determine how the derogatory event was reported.
NOTE: disputing accounts will often not help you with qualifying for a mortgage. Most
times, lenders will require the disputes are removed by the consumer from the credit report.
Get a copy of the recorded deed showing your previous property being transferred out of your
name. Lenders will need this to determine when the clock starts for the waiting period. Your final
HUD-1 may also be required for a short sale.
Work on building savings. FHA will allow for as low as 3.5% down and some programs will allow
for down payment assistance. Even with little down payment, lenders will want to see that you
have some reserves set aside as an extra "cushion".
Meet with a mortgage professional early. An experienced Loan Officer should be happy to
meet with you to help review your credit and develop a game plan so that once your "waiting
period" is over, you're in the best position to buy.
Be prepared to write a letter to the lender explaining why the derogatory event happened and
what steps you've taken to prevent it from happening again.

If you had a short sale, you will need the final HUD-1 Settlement Statement
showing the date the property transferred from your name.
With a foreclosure, you will need a copy of the recorded deed showing when the
property transferred out of your name to the lender. You may need to contact the
county recorder's office your property was located in if you do not have a copy.
You will want to obtain this information as soon as possible and have it for your
records.
The dates from when the property left your name is what the new lender will most
likely use for the "start date" of your waiting period.
What determines the "start date"
for when you can buy a home again?

Mortgage Programs
There are many mortgage programs available to home buyers getting ready to buy a home
again.
Which one you select will depend on your personal financial scenario, including down
payment, credit scores and income. Another factor may be the type of mortgage that was
involved with the foreclosure/pre-foreclosure (such as FHA, VA, USDA or conventional).
Remember that waiting periods do apply with the mortgage programs and there may be
lender "overlays" to guidelines.
It's important to ask your mortgage professional to review mortgage programs that you may
qualify for and what the pros and cons are.
Consider how long you plan on staying in the home and what your financial goals are.
Be sure to ask plenty of questions!

Home Advantage
with Down Payment Assistance
Home Advantage is a program that is offered through the Washington State Housing Finance Commission.
Home Advantage is typically combined with a Home Advantage second mortgage that can finance closing
cost and the down payment.
The first mortgage can be FHA, VA or a conventional mortgage. Waiting periods DO apply. With a 680 or
higher credit score, the conventional mortgage offers reduced mortgage insurance premiums which makes
this a very attractive option for home buyers shy on down payment who have been considering FHA.
The second mortgage has a maximum loan amount of 4% of the first mortgage loan amount and the
payment is deferred for 30 years (or until the property is no longer owner occupied) at zero percent interest.
Should the home owner convert the property to an investment/rental or sell the home, the second mortgage
may be called due.
Here are some of the program guidelines:
property must be owner occupied/primary residence
only for homes in Washington state
you do not need to be a first time home buyer
maximum debt to income ratio is 45% (exceptions up to 50% with specific compensating factors)
620 is the minimum credit score
home buyers must attend a Home Buyer Education seminar that has been registered with WSHFC
As a WSHFC trained mortgage originator, I'm pleased to be able to offer their programs.

FHA Insured Mortgages
Minimum down payment 3.5% - 5%
Maximum allowed Seller contribution is 6% of bona fide closing cost, prepaids and reserves
Owner occupied only
Higher loan limits than conforming in Seattle, Pierce and Snohomish Counties
Mortgage insurance regardless of loan to value.
No income limits
Appraisals are essentially the same as conventional. Possible second appraisal may be required if the
property was flipped" - HUD does not allow 2nd appraisal fee to be paid by buyer.
Why FHA?
Shorter wait periods for short sales, foreclosures and other derogatory credit events.
Down payment assistance or gift from family members is acceptable.
Less reserve requirements if borrower owns different property
Buyers who pay alimony may consider this program due to flexible underwriting.
Home buyers can purchase 2-4 plex w/minimum down payment IF they're occupying one of the units.
FHA Loan Limits
King, Snohomish & Pierce Counties
1 Unit: $567,500
2 Units: $726,500
3 Units: $878,150
4 Units: $1,091,351

VA Mortgage Loans Seller’s Guide
Only available to those who have served
our country in the military
2 year waiting period for most derogatory
events
Appraisals are done through VA's system
Seller pays for buyer's escrow fee
Maximum allowed seller contribution is 4%
VA Loan Limits
King, Snohomish & Pierce Counties
$500,000 for zero down payment
NOTE: VA does not set loan limits. VA down
payments for loan amounts over the zero
down limit are 25% of the difference.
For example, a $600,000 sales price has a
minimum down payment of $25,000 in King
County. 600,000 - 500,000 = 100,000.
100,000 x 25% = 25,000.

USDA Mortgages
Zero Down -Rural Housing
3 year waiting period for most
derogatory events.
Only available for homes that are
in designated rural areas. (not
orange on map)
Income limits apply based on
county and family size.
Owner occupied only
No maximum seller contribution
Current household income limits for USDA
King and Snohomish Counties: 1-4 Person $93,450 | 5-8 Person $123,350
Pierce County: 1-4 Person $82,450 | 5-8 Person $108,850

Conventional
Conventional financing may be the most challenging to qualify for following a short
sale or foreclosure.
Although Fannie/Freddie guidelines state they will accept a borrower with 20%
down payment 2 years following a short sale, many lenders have underwriting
overlays which prevent this. Most conventional lenders want at least 4 years to pass
with a minimum of 10% down payment.
There are a handful of lenders who are offering conventional financing with 20%
down after two years for a short sale.
Many "boomerang buyers" opt for FHA, USDA or VA financing for their next home
mortgage instead of waiting to be eligible for conventional financing. It's important
to check out all of your options and compare pricing of each available program.

What’s
next?
The first step is to get prequalified or preapproved so that you know what
other steps you many need to take before you can make in order to be
preapproved
It's okay to start this process even if you have months before your waiting
period is over. You can't start too early!
After you're preapproved, you can select a real estate agent to help you
locate your investment property, prepare your purchase and sales
agreement and see you through closing.

Typical Documentation
for getting Pre-Approved
Last two years W-2's
Last two years tax returns (if self employed, paid commission or have rental
property)
Most recent paystubs covering 30 days of income
Most recent bank statements/asset accounts (all pages) documenting funds for
closing and reserves
Copy of your ID (drivers license, etc)
Copy of HUD-1 Settlement Statement from sale (if short sale)
Copy of Deed transferring property out of your name (if foreclosure)
Complete loan application
Copy of bankruptcy papers (if in the last 7 years) including BK discharge
Copy of Divorce Decree or Child Support Order (if applicable)
Copy of mortgage statements if other property is owned.

References and Resources
• APR (Annual Percentage Rate)
• Calculators
• Conforming Loan Limits
• Credit Scores
• Debt to Income Ratios
• Down Payment
• Fannie Mae HomePath
• FHA Loan Limits
• Freddie Mac Homesteps
• Income
• Loan Application
• Mortgage Market Guide Weekly
• Preapproval
• Rate Quote
• Seller Contributions towards Closing Cost
• The Mortgage Porter - Blog

The Fine Print
The content provided on this guidebook is presented or compiled for your
convenience by Rhonda Porter and is provided for informational purposes only.
It does not necessarily represent the views or opinions of Mortgage Master
Service Corporation.
Neither Rhonda Porter nor Mortgage Master Service Corporation assumes any
legal liability or responsibility for the accuracy, completeness, or usefulness of
any information disclosed, or represents that its use would not infringe privately
owned rights.
The information provided should not be construed as offering legal, financial or
other advice to be relied on by the reader to make or refrain from making any
decision or to take any action.
The investment, mortgage or financial services or strategies mentioned in and
throughout this website may not be suitable for you.
Mortgage Master Service Corporation is an Equal Housing Opportunity Lender.
All rights reserved. All content, including but not limited to text, photos and
videos are protected by US Copyright. Plagiarism will not be tolerated.
Rhonda Porter is NMLS Licensed Mortgage Originator MLO-121324.
Mortgage Master Service Corporation NMLS# CLA-40445.

Buying a home again after a short sale or foreclosure

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Buying a home again after a short sale or foreclosure