How long do you REALLY have to wait after a short sale or foreclosure to buy?

In the Real Estate community, much confusion surrounds the subject of when a buyer who experienced a short sale or foreclosure can purchase a home again. Ever since 2012 started, it seems I get weekly emails from lenders claiming they offer “no seasoning” for buyers who have a foreclosure or short sale on their credit history.

After many of my past clients got word of these programs, this prompted them to apply for home loans after 2 years. Almost all of them were declined. It appears the lenders scrutinize the circumstances of their short sale or foreclosure very heavily and are accepting only certain types of hardship. All except one buyer who’s company went belly up was able to successfully purchase using VA financing.

From what I’ve seen, the “GSE loans” (FHA, VA, Fannie Mae, Freddie Mac) are more lenient at the 3 year mark. At the 2 year mark, only a small, select group of borrowers who can thoroughly document the hardship experienced during a short sale are eligible. Of course, they must demonstrate that they have recovered from this hardship and must comply to other requirements.

Outside of the GSE loans, there are “portfolio” loans offered by some lenders. These are loan products that have their own underwriting guidelines, a higher interest rate, and will  likely will be held by the lender. Unlike the GSE guidelines, the portfolio products I’ve seen require 20% down.

In many instances, I’ve seen conflicting guidelines. For example, one requirement I read from one loan required that the applicant couldn’t miss any mortgage payments. The only way to foreclose is to miss 7 consecutive months. Most short sales required missed payments.

Here’s the summarized answer to the blog’s question:

1. If 3 years pass, you’re eligible for VA, FHA, and conventional financing. Some documentation regarding your short sale or foreclosure may be requested.
2. If under 3 years, the hardship for your short sale or foreclosure will be heavily scrutinized. The majority of applicants will be turned down.
3. Outside of the 2 categories above, there are portfolio loans available, which are not offered by most high producing, experienced loan officers.