With the economy and housing market doing what it did since 2008, I am speaking to more and more clients that had a short sale in their past. Here are some guidelines to help during the next pre-approval. HUD has just announced some radical new changes if the short sale was a direct cause of the economy, and banks are still evaluating them. For now, I wanted to share the current (i.e. accepted by all banks) guidelines.
First, it is important to establish the “Completion Date”
1. If the old loan was a Conventional loan, the settlement date, or closing date on the HUD-1, is the “completion date”.
2. If the old loan was FHA or VA, and HUD paid a premium to the lending bank, then the date the premium was paid, is the “completion date”. This is often after the date that everything is signed. Your lender can check on this quickly by doing a CAIVRs search.
Second, we talk about the new financing that the buyer is trying to obtain
If the new financing is FHA, 3 years must pass from the settlement/completion date. There is a small loophole that if the client made no late payments on the old loan, and was relocated to a new state by an employer, and the short sale was due to that reason because the home was underwater, and could not sell, then they can buy right away with a new FHA loan.
If the new financing is VA, 2 years must pass from the completion date. Sometimes exceptions can be made if the short sale was due to relocation while in service, and there were no late payments, I have seen some get approved as soon as 1 year after the completion date.
If the new financing is Conventional, it gets more tricky. A borrower can buy after 2 years with a 20% down payment, 4 years with a 10% down payment, and must wait 7 years for a 5% down payment loan. Borrower must have re-established credit since the short sale, and no late payments.
Call me with any questions at all!