Home Financing After a Short Sale, Foreclosure or Modification

Mortgage and Lending with First Priority Financial NMLS# 252190


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Home Financing After A Short Sale, Foreclosure or Modification

Current guidelines - Spring 2011                                             

It is said in our industry that FHA is the new subprime.  FHA allows a low credit score without the substantial risk adjustments to the rate with conventional lending. It is true that credit scores can go quite low and credit history is negotiable, but in this conservative lending environment even FHA has restrictions.  New guidelines have been defined for clients with historic foreclosures, short sales and even loan modifications.

The question I ask when approving a client for a home loan is “Will homeownership be the best move for this client with their financial management history?”  Hard to admit, but SOME clients should remain renters.  Here are details on current credit requirements for the credit challenged, addressing credit scores, former home histories and down payments.  Print it out and keep it handy for those prospects with “issues”.


·         Minimum credit score 620. 

·         All borrowers must have credit score.

Credit Report

·         No mortgage late payments in the last 12 months allowed.

·         Non-borrowing spouse's debt obligations will be counted in to debt-to-income even though the spouse is not on loan.

·         Past due account may be required to pay off prior to financing.

Short Sales/Foreclosure/Modification/Bankruptcy Wait Periods

·         Short sale, foreclosure and loan modifications require 3 year seasoning from finalization date.

·         Bankruptcy - Chapter 7 requires 24 months seasoning and Chapter 13 requires 12 months of repayment.

·         Non-purchasing spouse must adhere to same time frame even if they are not on the loan.

Down Payments

·         3.5% down for FHA

·         1% down using CalFHA (income limits apply and needs 45 day escrow)

·         no down payment on VA loans

·         3% down, no MI for Cal Teachers

·         Down payments can come from gifts from employer or family

Closing Costs

·         Total home buying costs run about $7,000 for a $250,000 home purchase

·         can be paid by seller concession up to 6% of sale price

·         can be paid by lender as "no cost"  loan using higher interest rate

If you are working with a buyer with credit or home mortgage issues, please have them consult a mortgage broker BEFORE you spend your valuable time with them.  Some prospective buyers who short sold their home or modified their mortgage can be guided to being lendable over the long term so you can work with them in the future because they are not lendable now. 

For more information, visit my website www.SonomaCountyHomeLoans.info.   


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