How soon after a foreclosure/bankruptcy/short sale can you buy?

by Charles C. Heyward, Jr.

Foreclosures, bankruptcies and short sales can be devastating experiences for homeowners. It not only leads to the loss of a property but also impacts their financial well-being. However, many individuals wonder how long they have to wait before buying a home again after facing one of these situations. In this blog post, we will explore the various aspects of buying a property post-foreclosure/bankruptcy/short sale.

Firstly, it's essential to understand the differences between foreclosures, bankruptcies, and short sales. While all three situations involve financial distress, they have distinct processes and implications. Foreclosure occurs when a homeowner fails to make mortgage payments, leading the lender to seize the property. Bankruptcy, on the other hand, is a legal process that individuals or businesses go through to seek relief from their debts. Short sales involve selling a property for less than what is owed on the mortgage, with the lender's approval.

The timeline for buying a home after foreclosure depends on the type of loan a buyer is seeking. For government-backed loans such as FHA, VA, or USDA loans, the waiting period is typically three years from the date of foreclosure. Conventional loans, which are not insured or guaranteed by the government, generally require a waiting period of seven years from the foreclosure date. However, these waiting periods can be shortened if certain extenuating circumstances surround the foreclosure.

It's important to note that the waiting period begins after the completion of the foreclosure process, not from the date the homeowner fell behind on payments or received a notice of default. This process can take several months or even years, depending on the state's foreclosure laws and backlog of cases.

To improve their chances of obtaining a mortgage after foreclosure, buyers should focus on rebuilding their credit. Timely payments on other debts, such as credit cards or car loans, can have a positive impact on their credit score. Additionally, saving for a sizable down payment can also help demonstrate financial stability to lenders.

Aside from the waiting period, potential buyers should also consider their financial readiness to take on a mortgage. Lenders typically evaluate factors such as income, employment history, debt-to-income ratio, and creditworthiness. It's crucial to ensure that all these aspects are in good standing before applying for a new loan.

In conclusion, the length of time buyers have to wait after foreclosure before purchasing a new home depends on the type of loan they are seeking. While the waiting periods can be several years, it's essential to focus on rebuilding credit and achieving financial stability during this time. By doing so, individuals can increase their chances of obtaining a mortgage and securing a new property.

Below is a short reference table that you can use to determine when you can purchase a new home after a foreclosure, bankruptcy or short sale. For help on your specific situation, feel free to contact The Heyward Homes Team or one of our Preferred Lenders.

FHA Guidelines

Foreclosure or Deed in Lieu of Foreclosure

3 years from date foreclosure completed and transferred back to the bank. The date the Deed is transferred out of the borrower's name is the date that will be used for seasoning.
Less than 3 years but not less than 12 months from date of foreclosure completion and transferred back to bank if the result of acceptable extenuating circumstances. Extenuating circumstances are defined as death in family, medical illness and NOT divorce or loss of job.

Short Sale

3 years from date sale closed and transferred to the new owner.
No waiting period if borrower had no late payments on any mortgages and consumer debts within the 12 month period preceding the short sale AND they are not taking advantage of declining market conditions.

Bankruptcy Chapter 7

2 years from date of discharge with re-established credit paid as agreed or no new credit obligations incurred.
Less than 2 years but not less than 12 months from date of discharge may be acceptable if the bankruptcy was caused by acceptable extenuating circumstances and borrower has since exhibited a documented ability to manage financial affairs in a responsible manner.

Bankruptcy Chapter 13

1 year payout period under bankruptcy has elapsed and the borrower’s payment performance has been satisfactory and all required payments made on time. Must have bankruptcy trustee's permission in writing to purchase.

VA Guidelines

Foreclosure and Deed in Lieu of Foreclosure

2 years from date of the foreclosure completion and transferred back to bank.
12-23 months from date foreclosure completed and transferred back to bank if credit re-established and paid as agreed and was caused by acceptable extenuating circumstances.

Short Sale

1 year seasoning for a short sale as a maximum, no seasoning could be acceptable depending on the buyer's situation.

Bankruptcy Chapter 7

2 years from date of discharge.
12-23 months from date of discharge if credit re-established and paid as agreed and was caused by acceptable extenuating circumstances.

Bankruptcy Chapter 13

1 year payout period under bankruptcy has elapsed and the borrower’s payment performance has been satisfactory and all required payments made on time. Must have bankruptcy trustee's permission to purchase.

Conventional Guidelines

Foreclosure

7 years from date foreclosure competed and transferred back to bank if they had NO extenuating circumstances.
3 years from date foreclosure completed and transferred back to bank with acceptable extenuating circumstances. Additional overlays may apply such as a 10 percent down payment and purchase of primary residence only.

Short Sale or Deed in Lieu of Foreclosure

4 years from date sale closed and transferred to new owner or transferred back to bank.
2 years from the date sale closed and transferred to back to bank with acceptable extenuating circumstances.

Bankruptcy Chapter 7