How long after bankruptcy/short-sale before you can buy a house?

Written by James Hirby | Fact checked by The Law Dictionary staff |  

Ignoring the bankruptcy for a moment, on just the short sale impact, the very short answer is that it is very likely, as it is well documented, that one must wait at least 4 years. If one can bring a larger than normal down payment, and take on a higher interest rate, FHA will source a loan after 2 years to buy another house after a short sale, unless you are able to find a willing private mortgage lending company or an independent bank, and if you are willing to pay a higher interest rate than under normal circumstances, which is likely what caused the original default. Short sale sellers are unfortunately viewed as much higher risks that normal because of the late payment situation. Apparently, the best rates would come from government agencies and government sponsored loans, like those from the FHA, Freddie Mac, Fannie Mae, and Ginnie Mae. Allegedly even the VA and USDA can be loan sources. A site with good information on waiting periods and such is: [http://ncfhaexpert.com/fha/fha-and-va-mortgage-loan-guidelines-waiting-periods/]

Oddly enough, the bankruptcy part of the question does seem to be the hindrance. Normally, it would be three years following the lifting of a bankruptcy decision before a person could obtain a mortgage loan for a house purchase. Because of the negative credit ratings and conditions of the bankruptcy, be prepared for it to be seven years. That is how long it takes to clear the credit reporting. If a foreclosure occurred as a part of the bankruptcy, that just makes it credit report show that much worse. The mix of bankruptcy and foreclosure is the worst combination. An informative site on foreclosure is:
[http://www.foreclosurefish.com/blog/index.php?id=362]. Again, this site has a number of foreclosure scenarios and an archive. Lots of information can be gotten here.

The FHA has no rule preventing a person from a house purchase after that same person has done a short sale unless the FHA or the mortgage company believes that the buyer is selling just to take advantage of another short sale or the depressed market. Searching could not find any reasonable, quantitative analysis on that. It seems subjective. However, most mortgage companies are following FHA’s lead on this and evaluating why a short sale and quick purchase is happening. IRS is even getting involved.

Part of the difficulty of a short sale is that the seller has to have been late on payments for at least 30 days before FHA will grant a short sale. The URL below is from a Minnesota lawyer focused on this very subject. The site has a lot of blog Questions-and-answers that are enlightening because they contain a variety of scenarios.
[http://iloanminnesota.com/2010/05/30/buying-a-home-after-a-short-sale-dont-believe-the-naysayers/]

So, to summarize, bankruptcy is the worst part of the situation asked. Following its lifting, if a short sale had occurred, expect two years at best following the short sale to get a mortgage loan. But the bankruptcy will have to have been discharged. If a foreclosure occurred, best time is four years, and seven years is more likely. With a bankruptcy, you need to get it discharged before considering a new mortgage.

Try to short sale first, and then do bankruptcy while avoiding foreclosure, then foreclosure.

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