USDA Loans and Previous Foreclosure or Short Sale
As the first wave of homeowners that were impacted by the beginning of the foreclosure crises in 2006 and 2007 start reentering the housing market special attention needs to be given to when these borrowers are eligible for their new loan. USDA Loans guidelines allow a perspective borrower to have had a foreclosure or short sale as recently as three years prior to the new loan application being taken.
This assumes no "extenuating circumstances", which technically may shorten the three year waiting period. An extenuating circumstance is usually defined as a situation beyond the borrowers homeowners control, such job loss or sickness, that is unlikely to reoccur. While the USDA Guidelines allow for these scenarios most investors that actually underwrite and fund the loans won't.
The trigger point for defining when the foreclosure or short sale occurred will be the "date of sale." This can be tricky sometimes. Consider the following situations. If the previous foreclosure was included in a Chapter 7 Bankruptcy the bankruptcy may legally discharge the mortgage liability but often will not coincide with the lender taking back the property. Or if the previous loan was a FHA loan the trigger point will not be the date of sale but rather when the mortgage insurance claim was paid by HUD.
I recently had a borrower apply for a mortgage loan and the credit report indicated that there was a foreclosure within the last three years. I had the borrower go to The Court House and obtain a copy of the deed that transfered the property back to the bank. Guess what the transfer occured well outside of the three year waiting period and the bank was reporting this incorrectly to the credit bureaus. One set of credit dispute letters and the borrower was ready to start house hunting.
Bottom line, working with an experienced Loan Officer is critical when evaluating if you are eligible for the new USDA Loan post-foreclosure.
To learn more about your USDA Loan Financing options using the USDA Rural Loan Program go to USDARuralLoan.com or email info@USDARuralLoan.com. I specialize in USDA Loans, am approved to lend nationwide, and can be reached at (866) 747-2882.