To qualify for a mortgage and buy again soon after a foreclosure, short sale, or bankruptcy, an acceptable extenuating circumstance is needed. If you don’t have an acceptable extenuating circumstance, you need to either wait-it-out, purchase a home with all cash, or come up with a large 35-50% down payment and find a private/hard money loan shark lender to who will lend.
Who Makes The Rules?
Traditional forms of home financing such as FHA, VA, USDA and Conventional (Fannie Mae/Freddie Mac) publish their rules and guidelines that explain how long you must wait before you can apply for a mortgage after a foreclosure, short sale, or bankruptcy. Exceptions are not allowed unless an acceptable extenuating circumstance can be documented.
- Qualify and Buy a Home After a Short Sale in California
- Buy Again After Foreclosure in California – Waiting Periods Explained
- Buy a Home After Bankruptcy – Waiting Periods – Mortgage Guidelines
* The waiting period is like being put in the penalty box after slashing your opponent.
Flexibility to Grant Exceptions
Fortunately, FHA, VA, and USDA give local lenders/underwriters some flexibility to grant an exception and approve a home buyer for a new loan if there’s an acceptable extenuating circumstances. They require you to verify, document, and write a letter of explanation describing the events that led up to the event. That is why government loans such as FHA, VA and USDA are often called ‘story loans’.
But What is an Acceptable Extenuating Circumstances?
A common definition of an extenuating circumstance is a non-recurring event that was beyond an applicants control that resulted in a sudden, significant, and prolonged reduction in income or extreme increase in financial obligations. Events that are unpredictable, temporary in nature, out of the borrowers control, and unlikely to happen again.
Examples of an Acceptable Extenuating Circumstance:
- FHA considers a serious illness or death of a wage earner to be an extenuating circumstance. FHA does not consider divorce, job transfer and inability to sell a home, or job loss as an extenuating circumstance.
- VA may consider unemployment, prolonged strikes, or medical bills not covered by insurance. VA considers divorce with-in your control and not an extenuating circumstance.
- USDA may consider loss of a job, delay or reduction in government benefits or other loss of documented income; increased expense due to illness or death.
If You Have an Acceptable Extenuating Circumstance
If you have a possible acceptable extenuating circumstance, an exception may allow you to buy a home much sooner after your short sale, foreclosure or bankruptcy and avoid the 3-5 year penalty box. Your credit score will need to be rebuilt, have had perfect credit pay history since the event, and may require some compensating factors (larger down payment, reserves/savings, low DTI ratio, stable job).
Every situation is unique and there is no guarantee your situation will be considered acceptable. But I’m saying there is a chance.
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