I received an email yesterday from one of my short sale sellers who had closed an Elk Grove short sale on October 30th and bought a new home on December 30th, 2009. This was before FHA issued its new guidelines. The new FHA guidelines this year say FHA will approve a loan for a seller who sold on a short sale, providing the seller was not delinquent on the mortgage. I've been looking for a lender who will do this because none of my sources is funding such loans.
The client was excited to share the news, and added that he bought the home without an agent, using the help of a "sales associate." While I am not thrilled that the client was hoodwinked into believing he did not need to hire his own buyer's broker and therefore did not call me, I am super jazzed that he bought the home. His email made me realize that I need to be more diligent in letting my clients know that I can represent them if they want to buy a new home from a builder.
The last new home construction that I negotiated was a model home. Buying a model home from a builder is a bit complicated because those homes involve upgrades already in place. But builders in Sacramento are hurting financially and are willing to wheel and deal at the moment. Not only did this particular single woman home buyer get her model home at a terrific price, she also received all of the furniture for free. It pays to hire an agent, and it doesn't cost a buyer one thin dime.
The thing that struck a chord with me in my client's email was the fact a bank made him a loan 3 months after his short sale. This is what happened: Even though he was current on his payments to Wells Fargo, the bank made a notation on this client's credit report that the second loan was charged off. We tried to get that verbiage removed from the short sale approval letter, but Wells Fargo refused. After the short sale closed, Wells Fargo reported the loan as a charge off with a balance owing. The client called Wells Fargo and insisted that the loan should be reported with a zero balance because the debt was forgiven. So, Wells Fargo changed the reporting status to: Paid in Full for Less Than Agreed with a zero balance. After that adjustment, the client's FICO score jumped from 651 to 740.
This is why it's a good idea for sellers who do short sales to check their credit reports after closing. Another not-so-lucky client had Bank of America file a foreclosure against her after the loan was paid off as a short sale. And she was current on her mortgage payments when it closed. That was a real mess to untangle.
However, if you are thinking about buying a home after a short sale, and if your payments are current, you might want to contact Flagstar Bank and ask about an FHA loan. Flagstar is funding loans for buyers after selling as a short sale. The minimum FICO score required by Flagstar is 650.