There is a lot of discussion about owners that have a distressed sale and how soon should they be able to buy again. Combining a distressed sale with bankruptcies have made this issue more difficult to figure out. Over the past few years this topic has been it has been discussed over and over again. The issue of having those with a real hardship and those that executed a strategic default have added an additional complexity. No matter what side of the discussion you fall on, with few exceptions the time lines are set as follows:
HOW LONG FOR - FORECLOSURE AND/OR DEED IN LIEU OF FORECLOSURE
FHA - 3 years from the completion date of the foreclosure
CONFORMING 7 years from the completion date of the foreclosure
VA 2 years from the completion date of the foreclosure
USDA RURAL 3 years from the completion date of the foreclosure
HOW LONG FOR - BANKRUPTCIES – CHAPTER 7 AND CHAPTER 13
FHA - Chapter 7 requires 2 years from discharge date. Chapter 13 requires 1 year with satisfactory pay history and court approval.
CONFORMING - Chapter 7 requires 4 years from discharge date. Chapter 13 requires 2 years from discharge date.
VA - Chapter 7 requires 2 years from discharge date. Chapter 13 requires 1 year with satisfactory pay history and court approval.
USDA RURAL - Chapters 7 and 13 require 3 years from discharge date.
Short sales are typically treated the same as foreclosures as listed above with the exception of FHA and private loans.
FHA loan after a short sale
Right now only the FHA program allows move-up home buyers to get approved for a mortgage after completing a short sale of their existing home. FHA has established specific criteria under which a Home Purchase after a short sale is permitted. These rules include the following:
You must have been current at the time of the short sale. All of your payments must have been made on time leading up to the short sale. Otherwise, you will need to wait at least three years.
The purpose of the short sale and subsequent purchase cannot be simply to take advantage of depressed market conditions to dump your existing home and buy a similar one in the same neighborhood for less money. Buyers must have a legitimate reason why they need to move - such as relocation, new job, divorce, death of primary wage earner, etc.
You must qualify for all other criteria for an FHA loan.
If a short sale is considered to have been a strategic default and not a short sale due to a hardship getting a conventional loan, FHA or VA loan will have the seller waiting at least 2 or 3 years.
A number of mortgage banks (not retail banks that provide checking accounts as an example) will provide a loan to purchase a home after a short sale providing the owner has not been late on any payments within the last 12 months. One of the mortgage banks I work with offered one of my clients at loan at 6% with 30% down and a balloon at 5 years.