After the market crashed in 2008, really 2007, many people were forced to foreclose or short sell their homes. The modification help came a little too late for many people that were greatly impacted by the economic recession. Many of those people have now recovered and are looking to re-enter the housing market. In 2014 8% of home purchases were by buyers that had previously experienced a short sale or foreclosure. The GSE's waiting period for financing after a foreclosure is 7 years and after a short sale or deed in lieu is 4 years. Oddly enough when I worked in loss mitigation in 2011 FNMA reps themselves told us to sell short sales or deed in lieu with the idea that they could finance again in two years but that is a separate issue. Conversely FHA and VA will allow for shorter waiting periods across the board (2 years for VA and 3 for FHA). FHA, VA, Fannie and Freddie all have an exception for "extenuating circumstances" that lead to the distress sale. If a buyer can document a hardship that had a direct impact on the ability to pay then they could qualify for an exception and get a loan sooner. In fact they can get a loan in a year with FHA or VA if they can document the circumstance. The issue is what qualifies is clear as mud. Obviously a job loss would be an extenuating circumstance but relocation due to job loss is not. There is also a good amount of additional overlays for those seeking a shortened seasoning period. They may require additional money down, credit counseling and not current credit issues. So while it may be good to have the option to purchase after a credit event, be prepared to thoroughly document the reason for it.
Welcome Back: Buying After a Distressed Sale
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