buying a home again after a short sale or foreclosure

Buying a Home AgainAfter a short sale or foreclosure

by Rhonda PorterWashington 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)

http://www.mortgageporter.com/

Boomerang Home Buyers

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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.


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WHEN CAN I BUY AGAIN?Derogatory Wait Times


Short SaleFHA: 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 yearsVA: Typically treated the same as a foreclosure.USDA: 3 Years

Foreclosure or Deed-in-LieuFHA: 3 YearsFannie/Freddie: 7 YearsVA: 2 YearsUSDA: 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.









http://www.mortgageporter.com/2013/03/how-does-a-loan-mod-impact-buying-your-next-home.html




Bankruptcy Chapter 7 or 11

FHA: 2 YearsFannie Mae/Freddie Mac: 4 yearsVA: 2 YearsUSDA: 3 Years

BankruptcyChapter 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 earnermedical 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 valueFreddie Mac: 2 yearsFHA/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-establishedFannie/Freddie: 3 YearsVA: 1 YearUSDA: 3 Years (same as withoutan extenuating circumstance).










Getting Ready to Buy AgainWhat 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 AssistanceHome 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 residenceonly for homes in Washington stateyou do not need to be a first time home buyermaximum debt to income ratio is 45% (exceptions up to 50% with specific compensating factors)620 is the minimum credit scorehome 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.


http://www.mortgageporter.com/education









FHA Insured MortgagesMinimum down payment 3.5% - 5%Maximum allowed Seller contribution is 6% of bona fide closing cost, prepaids and reserves Owner occupied onlyHigher loan limits than conforming in Seattle, Pierce and Snohomish CountiesMortgage insurance regardless of loan to value.No income limitsAppraisals 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 propertyBuyers 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: $567,5002 Units: $726,5003 Units: $878,150

4 Units: $1,091,351










VA Mortgage Loans Seller’s GuideOnly available to those who have

served our country in the military2 year waiting period for most

derogatory eventsAppraisals are done through VA's

systemSeller pays for buyer's escrow feeMaximum allowed seller contribution

is 4%


VA Loan LimitsKing, 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 MortgagesZero 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 onlyNo maximum seller

contribution

Current household income limits for USDAKing and Snohomish Counties: 1-4 Person $93,450 | 5-8 Person $123,350Pierce 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'sLast two years tax returns (if self employed, paid commission or have rental property)Most recent paystubs covering 30 days of incomeMost recent bank statements/asset accounts (all pages) documenting funds for closing and reservesCopy 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 dischargeCopy of Divorce Decree or Child Support Order (if applicable)Copy of mortgage statements if other property is owned.









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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


http://www.mortgageporter.com/2012/10/apr-is-not-the-best-tool-for-shopping-mortgage-rates.html

https://mortgageporter.secure-loancenter.com/calculators/menu.aspx?oempage=1

http://www.mortgageporter.com/2012/11/2013-conforming-loan-limits-for-washington-state-mortgages.html

http://www.mortgageporter.com/credit-and-identity-theft

http://www.mortgageporter.com/2007/12/debt-to-income.html

http://www.mortgageporter.com/2007/05/funds_for_closi.html

http://www.mortgageporter.com/2011/04/how-to-buy-an-investment-property-with-a-10-percent-down-payment.html

http://www.mortgageporter.com/2011/04/how-to-buy-an-investment-property-with-a-10-percent-down-payment.html

http://www.mortgageporter.com/2012/12/2013-fha-loan-limits-for-washington-state.html

http://www.mortgageporter.com/2013/02/what-is-the-difference-between-fannie-mae-homepath-and-freddie-mac-homesteps-updated.html

http://www.mortgageporter.com/2013/02/what-is-the-difference-between-fannie-mae-homepath-and-freddie-mac-homesteps-updated.html

http://www.mortgageporter.com/2007/12/what-is-require-2.html

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http://www.allaboutnews.com/mmgw_control.php?nomenumode&syndicated&username=rporter3&cmd=previewpdf&id=279&notify=true&ts=1370266378

http://www.mortgageporter.com/2012/02/what-do-you-need-to-get-a-preapproval-letter.html


http://mortgageporter.com/2011/05/how-much-can-sellers-pay-towards-closing-cost.html











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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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