Everywhere we turn we are inundated with news of, and statistics about foreclosures. Hardship foreclosures, strategic foreclosures, the list goes on and on.
One question frequently asked is “What is the actual date of the foreclosure?”. Is it the date of sheriff’s sale, the date of the confirmation of sale, the date the deed was signed by the sheriff, the date the property transferred out of the homeowners name? Simply, the answer varies based on the lender you talk to. However, the safest answer is the date the property transfers out of the homeowners name, as documented
with the recording of the Sheriff’s Deed. In Ohio, this information can generally be found on the County Auditor’s website. Here is a link to all of the County Auditor websites in Ohio: OHIO COUNTY AUDITORS
So what does a homeowner facing foreclosure, or who has been foreclosed on have to look forward to as far as becoming a homeowner again? I’ll go over the various loan programs and their requirements regarding past foreclosures. Keep in mind that these guidelines can change at any time.
CONFORMING PURCHASE MORTGAGE
(insured by Fannie Mae or Freddie Mac)
A 7 Year waiting period is required, and is measured from the completion date of the foreclosure (date property transferred out of the homeowners name)
A 3 year waiting period is allowed if extenuating circumstance can be DOCUMENTED (generally extenuating circumstances include death of a wage earner or similar situation, but do not include divorce). The following criteria apply for 3-7 year waiting periods:
- Maximum financing is 90% or less
- Purchase of a primary residence is permitted
- Rate and Term refinances are permitted on primary residences, second homes and investment properties (subject to eligibility requirements for those particular loan types)
- Cash Out refinances are not permitted
The borrower must also show that they have re-established their credit. A borrower’s credit is considered re-established if ALL of the following are met:
- waiting period is met
- the loan is approved through Fannie Mae or Freddie Mac’s automated underwriting system (AUS)
- the borrower has traditional credit (cannot use alternative credit accounts such as utility payments, auto insurance payments, etc.)
FHA PURCHASE MORTGAGE
A 3 Year waiting period is required when a borrower has had:
- his/her previous principal residence or other real property foreclosed, or
- he/she gave a deed-in-lieu of foreclosure
Lenders may grant an exception to the 3 year waiting period if the foreclosure was a result of DOCUMENTED extenuating circumstance that were beyond the control of the borrower (such as serious illness or death of a wage earner) and the borrower has re-established good credit since the foreclosure.
FHA specifically states “Divorce is not considered an extenuating circumstance.” and “The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance”.
VA PURCHASE MORTGAGE
The Department of Veterans Affairs (VA) does not specify a waiting period, their Foreclosure guidelines refer back to their bankruptcy guidelines which read:
“You may disregard a bankruptcy discharged more than 2 years ago. If the bankruptcy was discharged within the last 1 to 2 years, it is probably NOT possible to determine that the applicant or spouse is a satisfactory credit risk unless both of the following requirements are met:”
- borrower or his/her spouse has re-established credit since the bankruptcy (or in our case foreclosure). This means that they have opened new revolving accounts (credit card) or installment loans and have been paying on them satisfactorily
- the bankruptcy (or in our case foreclosure) was a result of circumstance beyond the control of the borrower such as unemployment, prolonged strikes, medical bills not covered by insurance, etc. “Divorce is not generally viewed as beyond the control of the borrower and/or spouse”.
Long story short, plan on a 2 year waiting period for a VA purchase mortgage.
USDA PURCHASE MORTGAGE
Generally a 3 year waiting period applies to USDA Rural Development Guaranteed Mortgages.
However, USDA provides more leeway regarding foreclosures than any of the other mortgages we’ve discussed. Depending on the situation, it is feasible to purchase a home with a USDA mortgage after a 2 year waiting period.
Each individual’s situation is different. You are encouraged to contact a licensed loan officer to help you navigate through the purchase process for any mortgage program.
