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Gregorio Denny

Purchasing After Short Sale

Thursday, May 27, 2010 - Article by: Gregorio Denny - Brookstone Mortgage Corporation - Message

In this age economic turmoil and declining home values, you may have found yourself stuck in a property that you cannot sell. Unfortunately, many have had to go the route of a "short Sale." A short sale is process where the mortgage lien holder agrees to accept less than the amount owed on the property as full satisfaction of the debt. As an example; say you owe $200,000 on a property that is now worth $150,000, it may be possible that the lien holder would agree to accept the $150,000 in a sale to a 3rd party that would relieve you of this debt. The bad news is that it does damage your credit rating and depending on the circumstances, could exclude you from future home financing for quite some time.

Fannie Mae will now allow you to purchase a home 2 years after a short sale with a 20% down payment and after 4 years with a 10% down payment, with re-established credit. If there were documentable, extenuating circumstances, you may be able to buy after 2 years with 10% down. Examples of extenuating circumstances are job relocation, illness, divorce, layoff, etc.

The even better news is that you may be eligible for a new FHA loan immediately after a short sale if:

  • All mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale and,
  • All installment debt payments for the same time period were also made within the month due.

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to:

  • Take advantage of declining market conditions, and
  • Purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

Borrowers in default on their mortgage at the time of the short sale are not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.

The bottom line is that after a short sale, you do have options. If you remained a responsible borrower, did not miss any mortgage payments and remained current on your other debt obligations, you may be able to qualify for a new FHA purchase immediately. If you were unable to keep up with your payments, you will still have options after 2 years. If you are unsure where you fit in all of this, don't just assume you will not qualify, contact an experienced loan officer and see if you do. WeFixRates.Com

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