Mortgage Guidelines After Short Sale On Loan Programs For Home Buyers

This ARTICLE On Mortgage Guidelines After Short Sale On Loan Programs For Home Buyers Was PUBLISHED On February 3rd, 2020

Mortgage Guidelines After Short Sale And Waiting Period Requirements:

• Mortgage financing after a derogatory event such as a short sale can be difficult
• In this blog, we will detail the ins and outs of how to purchase a home if you’ve experienced a short sale
• We will go over the waiting periods for each loan program and discuss how to apply for a mortgage when the time is right
• Remember, the Gustan Cho Associates do not have LENDER OVERLAYS, BUT waiting periods after a short sale have strict guidelines that must be followed

In this article, we will cover and discuss Mortgage Guidelines After Short Sale on the various mortgage loan programs.

What Is A Short Sale

First, we must understand what a short sale means.

• Many clients of Gustan Cho Associates are not aware of the differences between a short sale, a foreclosure, and a deed in lieu
• According to WIKIPEDIA, a short sale is defined as the sale of your property in which the net proceeds from the sale will fall short of paying off the lien against the property
• In this case, the lender will accept an amount lower than what is still outstanding
• The lienholder must approve the lower amount
• They are not obligated to settle for the lower amount
• A short sale is a voluntary process when the homeowner sells a property for less than is owed on the mortgage
• Before the short sale process starts, your lender or note holder must sign off on the decision to start a short sale
• You will need to document reasons to enter a short sale
• Most of the time, the lienholder takes a large financial loss in the short sale process
• Assuming the lender does approve your short sale request, the buyers of the home will negotiate to buy this property with the bank (lienholder)
• This process is called “lender approval”
• The lender must agree to accept the short amount to close on the transaction
• Once the short sale is approved by the lender, the process is very similar to buying a home from a regular seller
• There are times where the deficiency from what is owed, and the selling price is still the owners’ responsibility

Meaning they must pay back the shortage amount. Please contact a real estate attorney for more specifics. This blog is for informational purposes only.

Mortgage Guidelines After Short Sale Versus Foreclosure

We do not want you to get a short sale confused with a foreclosure.

• During the foreclosure process, the lender reaches out to you to evict you from the property whereas a short sale you voluntarily ask the lender for help getting out of the property
• There are some key differences between a short sale and a foreclosure
• A short sale is a voluntary process that happens when you are no longer able to make your payment
• Many times, borrowers may be underwater, where they owe more than their house is worth
• The lender will eat the deficiency

Remember, a foreclosure is involuntary after you get behind on your mortgage payments, the lender or lienholder will take legal action to seize the property from you.

Waiting Period Mortgage Guidelines After Short Sale

During the real estate crash, the short sale process was incredibly common. With artificially inflated home values and people struggling economically, a short sale was a good option for many homeowners.

• After you have completed a short sale, there is a strict waiting period before you can enter into a new qualified mortgage
• A qualified mortgage simply means your everyday mortgage product
• Fannie Mae, Freddie Mac, FHA, and VA
• Please see our blog on QM MORTGAGE for more information. The waiting periods are below for each agency

Fannie Mae:

• Fannie Mae has a 4-year waiting period after a short sale. (NOTE: the 2-year waiting period with 20% down payment is no longer allowed)

Freddie Mac:

• Freddie Mac has a 4-year waiting period after a short sale

HUD Guidelines:

• Unfortunately, FHA looks at a short sale the same as a foreclosure and has a 3-year waiting period from the date your name is removed from the deed with the county
• FHA does have a caveat to the 3-year waiting period
• If you were not late on your mortgage payments before the short sale, and your mortgage was not in default, there is no waiting period
• This is a rare circumstance considering most individuals seeking a short sale are behind on their payments

For more information on this no waiting., please call Mike Gracz on (800) 900-8569.

VA  Short Sale Guidelines:

• VA mortgage only has a two-year waiting period after a short sale
• The same is true for a foreclosure or deed-in-lieu, or even a Chapter 7 bankruptcy

Mortgage Loan Program With No Waiting Period After Short-Sale

How can you buy a house without a waiting period?

NON-QM Loans:

• NON-QM mortgage lending has made a huge comeback in the industry
• Not to be confused with a hard money loan or a subprime loan
• NON-QM simply means a non-qualified mortgage
• A non-qualified mortgage does not have to follow agency guidelines or waiting periods
• A NON-QM lender can make up their own guidelines as they lend their own capital
• Many NON-QM mortgage loans do not have a waiting period after a foreclosure or short sale
• Even one day after a short sale you can qualify for a NON-QM mortgage
• The downside to utilizing a NON-QM mortgage loan is cost
• Typically, a NON-QM mortgage loan will have a higher interest rate compared to a qualified mortgage
• A NON-QM mortgage can be a great tool to continue owning a home in building equity

As soon as your waiting period has elapsed, you can refinance out of the NON-QM mortgage loan.

Qualifying And Applying For A Home Loan After A Short-Sale

Applying for a mortgage after a short sale:

• If you have had a short sale in your past, it is important to keep documentation from the event
• You will want to double-check County records to verify what date the property was deeded out of your name
• That date starts your waiting period
• For example, if you had a short sale and county records show your name was removed from the deed on 2/1/2017, you would be eligible to apply for an FHA loan on 2/2/2020 (3 full years and one day)

From there you will FOLLOW THESE STEPS to apply for a mortgage with Gustan Cho Associates.

Now that you understand what a short sale is are the differences between a short sale in foreclosure, you can now prepare to buy your home based on the waiting periods. We are available seven days a week to answer your mortgage related questions. A short sale is not a fun time for anyone involved, but homeownership is still in your future. For any general mortgage questions, please reach out to Mike Gracz on (800) 900-8569 or send an email to alex@gustancho.com. We look forward to assisting you with your mortgage financing needs. To stay up to date with Gustan Cho updates, subscribe to our YouTube CHANNEL.