This year is already shaping up to be the year of the boomerang buyer, or the repeat homebuyer. As it is now seven years since the housing crash, there are many buyers who experienced a financial hardship in the recent past who are getting back into the market to purchase a home again in 2015.
There were several changes recently to the waiting periods when a buyer or homeowner can obtain a new mortgage and repurchase a home again after a foreclosure, short sale or bankruptcy. Borrowers today essentially have three options when it comes to obtaining financing to purchase a home. In fact, more than 9 out of 10 mortgages are either funded by Fannie Mae/Freddie Mac, the FHA or VA. So, if you are looking to purchase and need financing, it is more than likely you will be using one of these three financing options and it is important to know the current waiting periods when you can repurchase after a hardship.
- Conventional: Seven years. If you included the foreclosure in a bankruptcy, you can qualify after four years instead of seven years.
- FHA: Three years. FHA buyers can qualify again after just one year if they experienced an economic event.
- VA: Two years.
After Short Sale:
- Conventional: Four years.
- FHA: Three years. If the FHA buyer did not have any late payments before their short sale, they are allowed to automatically qualify again for FHA financing. There’s also a fantastic FHA program called the FHA Back to Work Program. If a buyer experienced an “economic event” whereby their household income fell by 20 percent or more for a period of at least six to 12 months, the agency has now reduced the waiting period to only one year.
- VA: Two years.
- Conventional: Chapter 7, four years; Chapter 13, two years.
- FHA: Chapter 7, one year; Chapter 13, one year.
- VA: Chapter 7, two years; Chapter 13, one year.
What if you don’t fit into these rules?
There are new mortgage options available for borrowers who do not fit these more traditional mortgage options above. Portfolio lenders are stepping in to provide mortgage options for buyers who cannot qualify for conventional, FHA and VA financing, and with terms much better than private financing.
There are lenders who will provide financing for buyers less than six months out of a foreclosure, short sale or bankruptcy. Of course, this does not come without a price. You need a larger down payment and rates will be higher than traditional loans.
Another part of the puzzle to helping you get in a position to repurchase again is ensuring you have also started to re-establish your credit since the financial hardship.
For example, even though the required timeline of say two or three years may have passed so you can qualify for conventional or FHA financing again, it is important you have also started to rebuild your credit and have the required credit scores to qualify again for financing. The FHA and VA only require a 580 credit score to repurchase again.
The first step is to get a copy of your credit report to verify if the financial hardship or discharge is reporting correctly and to also see what your scores are.
You can go to www.annualcreditreport.com to get a free copy of your credit report (consumers are allowed one free credit report per year).
Then the next step is to start rebuilding your credit scores.