Saturday, April 26, 2008

If my home goes into foreclosure, how long until I can buy again?"

Rates are up slightly for the week. Rates should have come down a bit today from bad economic news related to the Consumer Sentiment report that was the weakest in 26 years. They didn’t, which means Monday should be pretty interesting. If you are floating a loan, you may want to lock.

"If I let my home go into foreclosure or sell it in a short sale, how long until I can buy again?"
People ask me this question weekly. The answer is.... a long time. Plan on a minimum of three years and as many as seven or more.

Fannie Mae, the largest backer of mortgages in the world, recently sent a harsh message to borrowers for walkaways and other foreclosure situations. Plan on waiting five years and then having good credit and nice down payment.

The walkaway trend is popular here in Clark County and other areas where many homeowners find themselves upside down on their loans. These people owe tens of thousands more than the current market value of their houses. In some cases, they are upside down by hundreds of thousands.

If they did little to no money down loans, some homeowners believe if they continue to make payments, even if they can afford to, they may be throwing good money after bad.

Fannie Mae will now prohibit foreclosed borrowers from getting another mortgage through them for five years, unless there are "documented extenuating circumstances." In those cases, the prohibition is for three years.

No word on if this is the same on "settled" accounts like short sales, but most experts say to expect the same guideline.

Extenuating circumstances are life events that are "out of your control" that create a financial crisis, like death of the primary wage earner, medical-related illness to the primary wage earner or, sometimes, job loss of the primary wage earner.

Extenuating circumstances are judged on a case-by-case basis and are challenging to prove. You will have to document this tragedy through death certificates, medical records, letters from the former employer, and you will have to prove that this event, and this event alone, this led to your financial demise. It’s not a common exception and underwriters are usually very skeptical when faced with it.

Getting in a bad adjustable rate mortgage, having an unscrupulous loan officer, or the market turning downward is not an extenuating circumstance.

Even after five years, Fannie Mae will require borrowers with foreclosures in their files to make at least a 10 percent down payment, and they will need a minimum FICO credit score of 680 for a new loan.

Freddie Mac counts foreclosures as major credit blots for seven years. FHA is currently at three years but it is expected they will increase this soon as well.

The bottom line, once again, as I keep preaching, is to avoid foreclosure and short selling when possible. There is nothing positive accomplished from either strategy. Note modification is the way to go.

If there is no way to avoid the foreclosure or short sale, plan on renting, leasing or leasing-to-own for the next three to seven years.

Have a weekend!!

Best Regards,

Charlie Johnson
Home Loan Consultant
10190 Covington Cross Dr. Ste. 190
Las Vegas, NV 89144
Office: 702-304-8938
Cell: (702) 241-5918

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