Bankruptcies, foreclosures and short- sales don’t have to be long-term home-buying death sentences.
In fact, Valley home-loan officers say the wait to be able to buy a new home after one of these events may be much shorter than most people think — depending on individual circumstances, as well as how much buyers are willing to shell out in fees and monthly payments.
The waiting game
“There are lots of portfolio programs that say ‘one day out of bankruptcy,’ or ‘one day out of foreclosure,’ but those are going to definitely cost you in terms of fees, monthly payment and down-payment because the lenders have to offset their risk,” said Amy Swaney, branch manager for Citywide Home Loans in Scottsdale. “It all depends on what you’re willing to do to get back into a home.”
Those who short-sold homes but had made payments on time up until the short- sale was completed fare the best.
“If you were current at the time of closing, you don’t necessarily have to wait for an FHA loan,” Swaney said. That’s compared to a three-year wait after a foreclosure and two years after a bankruptcy, as long as the bankruptcy didn’t also include a foreclosure, she said.
A Fannie Mae or Freddie Mac loan will take longer to land, though, Swaney said — typically four years after a short-sale and up to seven years after a foreclosure without extenuating circumstances.
“But if you think about it, the housing crisis started for many in about the middle of 2007, and we’re already seven years away from that,” Swaney said. “So if someone filed bankruptcy or foreclosure at the peak, they would be able to go out and get a traditional mortgage right now and not have any problems with that.”
For buyers looking to move more quickly, licensed loan originator James LaVanway said a mortgage banker like him is the way to go. LaVanway, with Guild Mortgage Company in Tempe, said that if you were current at the time of your short-sale, “you can buy practically the next day.”
Because mortgage bankers can either service their own loans or sell the loans as a correspondent lender, they have many more products available to them than national banks, LaVanway said. “An experienced mortgage banker is going to have more tools at their disposal,” he said. “That’s because we don’t sell our loans to one place — we sell to multiple places.”
Credit is king
Every prospective buyer who has experienced a bankruptcy, foreclosure or short-sale should spend time checking and repairing their credit, regardless of the type of loan they ultimately want. That’s because interest rates are always a reflection of credit scores, LaVanway said, adding that lower scores are a higher risk.
That’s why Swaney said the first thing a person should do after experiencing one of these negative financial events is to pull their credit report — and then pull it and review it every six months after that to ensure that everything has been reported correctly and there are no mistakes on the report that are causing the score to dip lower than it should.
“A lot of times, a short-sale has been reported inaccurately because there’s no incentive for that lender to make sure the information is 100 percent accurate,” she said. “So it’s going to be up to you to make sure it’s reported the way you think it should be reported.”
Deal with it head-on
The time to start the credit clean-up process is right away.
“People often want to put their head in the sand and ignore it and hope it goes away,” Swaney said. “But the best thing they can do is deal with it head-on. It’s not something to be ashamed of — it’s some- thing to work through and to find a lender that’s willing to work through it with you.”
AnnualCreditReport.com: Pull free credit reports from each of the three nationwide consumer credit reporting companies.
Consumer Financial Protection Bureau (ConsumerFinance.gov): Submit a complaint about an inaccuracy on your credit report, ask financial questions and get information to help you make informed financial decisions.