Time Considerations After A Short Sale Before You Can Buy A Home Again

Time Considerations After A Short Sale Before You Can Buy A Home Again

With the number of short sales happening in the Phoenix AZ real estate market, many homeowners who have gone through the process (or are thinking about the process) wonder about what’s next after the short sale is complete. This post will not cover the legal battles you might have with your ex-lender but rather it is going to cover your options for living arrangements and home buying after your short sale is complete.

Two years?

One of the first things to get comfortable about when it comes to a short sale is that you will not likely be able to buy a new home for at least 2 years (all mortgage programs including VA loans, FHA loans and Conventional mortgages). The 2 year guideline stands as long you keep your credit record spotless from the time your short sale is complete until you try to get a new mortgage.

Which Types of Mortgages?

These guidelines and general rules apply to any type of mortgage. Later in the post, the time requirements for common mortgage types is explained in detail.

Time Requirements

With this in mind you’ll need to think about renting a home for a at least 2 years to give yourself time to meet the minimum time requirements that you’ll need to get any type of mortgage. Mortgage programs differ and there are different time requirements following a short sale that you’ll need to know about if you plan to purchase a home after your short sale. Below you’ll see a summary of some of the time requirements.

Time Requirements To Getting a New Mortgage After A Short Sale

Fannie Mae (Conventional and Freddie Mac):

      • 2 years with 20% down
      • 4 years with 10% down
      • 7 years with 3% down

FHA:

      • 3 years from short sale completion date * Per FHA – you may be able to get a FHA mortgage under 3 years under special circumstances

VA:

      • The VA hasn’t specified wait time guidelines after a short sale but plan on nothing less than 2 years.

USDA Rural:

      • 3 years from the completion date

Jumbo:

      • 7 years from completion date

 

Next Steps

Now that you have this list you may want to think it is set in stone. What you need to remember is that if you have a good reason for what caused the short sale you may be able to get an exception to any of the time frames listed above. Best thing you can do is talk to a few loan officers to get different opinions.

FHA 203k Loan or HomePath Loan?

FHA 203k Loan or HomePath Loan

Here in Arizona, if you are shopping for a home, there is a good chance that you have seen at least a few bank owned properties.
In my experience, properties that are currently owned by the bank are in need of a few repairs before anyone can live in them. Which is why I get quite a few questions about two of the most popular loan programs designed to help homeowners finance needed repairs on a new home: the Arizona FHA 203k loan program and Fannie Maes HomePath mortgage program. One of the more common quick questions I hear when people are learning about these loan programs is:Which is better, the HomePath momortgager the FHA 203k loan? The simple answer to this question is it depends and before I give you a simple formula that might help you choose between the two programs, here is a quick review of each loan program.

    • The FHA 203k and FHA Streamline 203k Loans
    • Fannie Mae HomePath Renovation Loan
    • Which Loan Program Is Better?

The FHA 203k and FHA Streamline 203k Loans

The FHA 203k loan program can be grouped into two different types of loans: the FHA Streamline 203k loan program and the FHA 203k loan. The FHA 203k streamline is designed to be a limited repair program and has simpler processes and no HUD consultant required like on the full FHA 203k loan. In my experience, the FHA 203k streamline is a more popular option since many of the needed repairs for bank-owned homes can be considered cosmetic.

Highlights of the FHA 203k streamline loan include:

      • It works very similar to a construction loan it allows you to purchase a home that wouldnt qualify for FHA financing due to repair work being needed
      • The loan amount is equal to the purchase price of the home plus the amount needed for repairs
      • FHA 203k streamline program allows for repairs ranging from $5,000 and $35,000
      • Qualifying for FHA 203k loans are the same as regular FHA loans
      • Repair work cannot begin until loan closes and the money to pay contractors comes from an escrow account set up when the loan closed
      • FHA 203k loans require UFMIP and MIP just like regular FHA loans
      • Appraisal required
      • Currently available for owner-occupied properties only although I have heard rumors of an Investor 203k loan coming soon.

Fannie Mae HomePath Renovation Loan

When the housing downturn began and Fannie Mae started owning more homes than ever before, one of the things Fannie Mae did to help move the homes to new owners was to design the HomePath mortgage program.

The HomePath mortgage program has two different programs within it the HomePath loan and the HomePath Renovation loan.

For homes that are in need of repairs, the HomePath Renovation loan is the loan program that is often compared to the FHA 203k loan when weighing options.

HomePath Renovation loan highlights include:

      • The property must be currently owned by Fannie Mae
      • The loan amount is for both the home and the repairs required for the home
      • Repairs can be up to 35% of the as-completed value, but not to exceed $35,000.
      • Down payment requirements can be as low as 3%
      • Fixed or adjustable rates are available
      • No mortgage insurance required
      • Investment properties or 2nd homes and investment properties are allowed
      • No appraisal required
      • Lenders can be difficult to find, not every lender is HomePath approved and many HomePath approved lenders do not offer the HomePath Renovation loans
      • HomePath Renovation Loan or FHA 203k Loan?

When deciding on financing for a home that is in need of repairs, the Fannie Mae HomePath Renovation loan program and the FHA 203k loan program are what most people are going to select.

Is there an easy way to select the right loan between the two?

Yes.

Which Loan Program Is Better?

Here is a simple way to choose the right loan program between the two if you are buying the home as your primary residence:

      • Is the home owned by Fannie Mae? If yes, it probably makes the most sense to get a HomePath Renovation loan.
      • Is the home owned by someone other than Fannie Mae? If so, then your best option is the FHA 203k loan.
      • While both the FHA 203k loan and the Fannie Mae HomePath Renovation loan programs are similar, I have found that for houses owned by Fannie Mae it usually makes more sense to go with the HomePath Renovation loan.

What’s Next?

Which means the first question you may want to ask is:

Is this house owned by Fannie Mae?

And then you will have your answer.

Green Homes: Harder To Refinance?

Building a home with “green” materials is becoming more popular. But be careful when building a home using green materials or remodeling your home using green materials — it may make it more difficult to refinance when it comes time to refinance.

According to a story in the Wall Street Journal, at least one couple is having this problem:

Getting financing for unusual homes has never been easy. Near Granby, Colo., Richard Messer opted not to look for a conventional mortgage because there was nothing conventional about what’s inside his walls: 50 tons of paper Coors beer packaging used as insulation. Mr. Messer got a $60,000 loan from friends to help pay for it. “The problem for anyone trying to do a unique house is financing,” he says.

Wayne Bryant, a 56-year-old steamfitter, spent much of last year looking for a way to refinance a $417,000 construction loan on his underground house high in the San Juan Mountains in southwest Colorado. The first appraiser to examine his property didn’t even come down from Denver to look at it, saying he had made a few phone calls and determined that there were no comparable transactions in the area, Mr. Bryant says.

No matter what state you live in, one thing to consider when using “green” or recycled products to build your home is “how will this impact my ability to finance this house”?

As the credit crisis drags on and banks are picky about who they are lending money to, one thing is certain:  Owners of odd homes can be out of luck.

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