Real Estate Market Rebound

Obtaining a Loan after a Short Sale,
Foreclosure or Bankruptcy

We are currently experiencing the real estate market rebounding, and with it a residential mortgage industry “shout out” to instill confidence in consumers and future borrowers. The time to purchase and realize dreams of homeownership is upon us again for the first time since the 2008 market crash where foreclosures, deed-in-lieu of foreclosures, short sales, and bankruptcies became rampant.

The majority of consumers dreaming of homeownership since the crash have been working diligently on rebuilding their credit, which is key. They have been patient, persistent and perseverant. However, the lending environment still has an “aura” of being restrictive which frightens many into thinking it’s impossible to qualify for a residential mortgage. Even with a major credit event on a former homeowner’s or borrower’s credit, it is still possible to obtain a home loan. Educating consumers about their options following one of these events falls on the mortgage industry and lending experts/loan originators.

New Day, New Opportunity

First and foremost, lenders need to ensure they are abiding and complying by the Qualified Mortgage Rule, especially when working with buyers that have a derogatory history. This rule, implemented by the Consumer Financial Protection Bureau (CFPB), generally requires creditors to make reasonable, good faith determination of a consumer’s ability to repay. Quite simply – lend to the people that can afford to pay the loan back.

Secondly, many lenders will still provide mortgages to borrowers with negative credit events. Each creditor has their own limits and restrictions on the loans they will grant. Reviewing your options with a loan officer is your best bet to figuring out which loan you are best suited for depending on your specific scenario.

How long do you have to wait to get these loans?

Fannie Mae and Freddie Mac are leading sources of residential mortgage credit in the U.S. For a lender to have them insure the loan they require:

  • 7 years after foreclosure
  • 4 years after deed-in-lieu of foreclosure
  • 4 years after Chapter 7
  • 2 years after pay-out period under Chapter 13

Federal Housing Administration (FHA) is a government agency that provides mortgage insurance on loans made by approved lenders. It requires:

  • 3 years after foreclosure or deed-in-lieu of foreclosure
  • 2 years from date of Chapter 7 bankruptcy discharge
  • 1 year after the pay-out period under the Chapter 13 bankruptcy discharge has elapsed

United States Department of Agriculture (USDA) is another government agency focused on rural development. They require:

  • 3 years after foreclosure or deed-in-lieu of foreclosure
  • 3 years from date of Chapter 7 bankruptcy discharge
  • 1 year after the pay-out period under the Chapter 13 bankruptcy discharge has elapsed

Veterans Administration (VA) is a government agency concerned with Veteran Affairs, but they also grant loans to former veterans and spouses. While they have no specific requirements for lending to a veteran with a bankruptcy, foreclosure or other credit event, a majority of lenders require:

  • 2 years from foreclosure or deed-in-lieu of foreclosure
  • 2 years from date of Chapter 7 bankruptcy discharge
  • 1 year after the pay-out period under the Chapter 13 bankruptcy discharge has elapsed

Lastly, it is important to stress every borrower’s circumstances and situation is different, and some lenders may have specialized products specifically for these loans that do not meet agency guidelines. For homebuyers recovering from a short sale, foreclosure or other mortgage credit event, options are out there. Don’t think because you’ve experienced something like this you will never be able to own a home again. The agencies and lenders continue to evaluate their guidelines in efforts to responsibly reinvigorate the housing market. Waiting periods for deed-in-lieu of foreclosure, short sales and bankruptcies are being looked at and extenuating circumstances often supporting reduced waiting periods. Contact a loan officer to review your options and start working towards your dream of homeownership again.

About the Author

NatashaNatasha Cartagena Spencer has been VP/Branch Manager of Shelter Mortgage Company since October 2006. Shelter Mortgage Company is recognized as an industry leader in mortgage partnerships because they are experts in their business and deliver outstanding service to their customers.


This article appears in the November 2015 issue of i4 Business.
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About the author

i4 Business

i4 Business

i4 Business magazine has become one of the most trusted voices for and about the Central Florida business community. Each month through our print and digital platforms, we provide access to meet, to learn from and to learn about some of the incredible entrepreneurs and business leaders who are shaping our region.

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