An allowable extenuating circumstance may allow you to qualify for an FHA, VA, USDA or Conventional mortgage much sooner to buy again after experiencing a short sale, foreclosure, or bankruptcy.
If you don’t have an acceptable extenuating circumstance, you need to comply with the official published waiting periods to qualify and buy again, 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.
Blog Post Updated 8/15/2013 – BREAKING NEWS ==> FHA announced new guidelines to consider the loss of a job and/or reduction of income an extenuating circumstance to qualify and buy again in as little as 12 months! Read ==> FHA Back to Work Extenuating Circumstances
Who Determines the Waiting Periods and Extenuating Circumstance?
Government finance agencies FHA, VA, USDA and Fannie Mae/Freddie Mac (Conventional loans) publish the rules and guidelines that explain how long a buyer must wait before they are eligible to apply and qualify for a mortgage after a short sale, foreclosure, or bankruptcy. The guidelines are actually very clear.
Exceptions to buy sooner than the published waiting periods are not allowed unless a borrower has a documented acceptable extenuating circumstance and credit is re-established.
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’.
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 and just announced they now will consider an economic event (reduction or loss of income due to job) an extenuating circumstance! Oddly enough, FHA still does not consider divorce as an extenuating circumstance.
- VA may consider unemployment, prolonged strikes, or medical bills not covered by insurance. VA also does not consider divorce 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.
Do You Have an Acceptable Extenuating Circumstance?
If you have a possible acceptable extenuating circumstance, we may be able to get you approved to buy again much sooner after your short sale, foreclosure or bankruptcy and avoid the shameful 3-7 year penalty box.
Your credit score will need to be rebuilt, have had perfect payment history since the event, document the bad credit was caused by a specific event, be able to verify on time rent payments, and may require some compensating factors (larger down payment, reserves/savings, low DTI ratio, high credit score, stable job).
Every situation is unique and there is no guarantee your circumstance will be considered acceptable. But I’m saying there is a chance.