Buying After an Arizona Short Sale

AZ Mortgage Approval After a Short Sale

When can I buy after a short sale?  This question is at the top of more current and former homeowner’s lists now than ever before.  Whether it is because they are deciding if they should go through with a short sale or if it is because they have already been through the short sale process and eagerly want to become Phoenix area homeowners once again.

As with most things in the mortgage/real estate world there is no simple answer to this question however with some digging there is a way to an almost definitive answer for everyone.  The “almost” comes from how mortgage lenders interpret what is and what is not an eligible “extraordinary circumstance.”  We will jump into that later in the article.  Aside from the objective evaluation of what is an extraordinary circumstance the answer to “when can I buy after a short sale” is determined by one or more of the following:

1. The type of loan one is trying to get qualified for
2. Whether or not the homeowner went late on their mortgage payment and any other debt that reports on their credit report dating back 12 months from the short sale completion date
3. The reason behind why the homeowner completed their short sale

Different Strokes for Different Short Sale Folks

Now, let’s jump into how each different type of home financing views a mortgage applicant who has gone through a short sale and how soon they can get approved for a new loan.

Conventional Home Loan Short Sale Rules

Conventional financing evaluates a mortgage applicant based on two categories.  Those categories seek to identify those who completed a short sale due to “Financial Mismanagement” and those that sold their home short due to “Extenuating Circumstances.”   Before we go any further, if you are thinking those two categories are a little black and white you are correct.   Fannie Mae/Freddie Mac make these two drastic distinctions when qualifying post short sale loan applicants however let me help clear up who fits into each.

To make a long story short, the vast majority will fall into the “Financial Mismanagement” category.  For the purposes of getting approved for a home loan the phrase “Extenuating Circumstances” relates to individuals who have experienced the death of a primary wage earner or who have been or were previously  diagnosed with  a serious illness that resulted in the loss of income.  Standard circumstances that would appear to be extenuating such as divorce or job loss are not typically considered as extraordinary in mortgageland USA.  Now let’s jump into it:

If a borrower completed short sale due to financial mismanagement the may qualify for a Conventional mortgage after a short sale as follows:

2 Years after a short sale with a 20% or greater down payment
4 Years after a short sale with 10% to 20% down payment
7 Years after a short sale with a down payment of less than 10%

If a borrower completed a short sale due to an extraordinary circumstance they may qualify for a Conventional mortgage after a short sale as follows:

2 Years after a short sale with a 10% or greater down payment
7 Years after a short sale with a down payment of less than 10%

FHA Home Loan Short Sale Rules

FHA bases its determination of when a buyer may qualify after a short sale primarily upon whether or not the homeowner went 30 days late (or more) on their mortgage payment and/or any other debt that reports to their credit report during the 12 months immediately preceding their short sale completion date.  This is FHA’s way of determining financial mismanagement.  The timeframes for when a borrower may qualify for a new FHA mortgage after a short sale are as follows:

If a borrower completed a short sale and DID NOT go late (30 days or more) on their mortgage or any other debt w/in 12 months of their short sale completion they may qualify for an FHA mortgage after their short sale as follows:

Immediately following their short sale

If a borrower completed a short sale and DID go late (30 days or more) on their mortgage or any other debt w/in 12 months of their short sale completion they may qualify for an FHA mortgage after their short sale as follows:

3 Years after their short sale completion date

NOTE: If a borrower is eligible for a new FHA home loan immediately following their short sale because they did not go late on their mortgage or any other debt they will be subject to additional scrutiny per FHA guidelines.  FHA very clearly states that they will not allow a homeowner to short sale and then buy a new home immediately simply to re-purchase a similar home in a similar marketplace at a reduced price.  Therefore, FHA will require that an Arizona Mortgage lender make sure the new home being purchased is typically 10 miles from their previous home. FHA and HUD will also require the buyer’s mortgage company to review why the buyer is short selling and then buying a new home.   Long story short – each of these types of application (using an FHA loan to buy immediately following a short sale) should be fully reviewed and approved by an Phoenix mortgage lender prior to such a buyer writing any offers on a new home to protect that buyer, their time and their money.

VA Home Loan Short Sale Rules

VA does not technically have a guideline that dictates when a qualified veteran may purchase a home after a short sale.  Typically VA defaults to their post-foreclosure timeframes which require a veteran wait 2 years after a foreclosure (and in this case short sale).  However it is important to note that VA will approve certain applicants prior to 2 years after a short sale.  It is important to have a AZ VA mortgage lender evaluate each veteran application when a short sale has been completed less than 2 years ago.

USDA MORTGAGE SHORT SALE RULES:

Similar to VA, USDA does not have a rule that dictates when an applicant may purchase a home after a short sale.  It is important to have a USDA mortgage lender evaluate each USDA home loan application when a short sale has been completed in the past 3 years.

Please feel free to call or email me with any of your short sale related questions.  It is extremely important to make sure you are carefully guided through your post short sale options in order to guarantee you have a solid and qualified approval in hand before moving forward with an offer on your new home!

By Jeremy House
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