How do you bounce back after credit takes a hit from a mortgage default or short sale?
The housing downturn touched all areas of the country, but came down particularly heavily in Miami. Now, the market there is healing, and many former distressed homeowners have healed their personal finances, too.
“We have lots of borrowers here who have gone through short sales and foreclosures,” says Miriam Gilmore, a loan originator with American Bancshares, Miami Lakes, Fla.
Yes, mortgage lenders will forgive loan applicants with serious offenses on their records, such as defaulting on a previous mortgage or coming up “short” after a sale and paying back only a portion of the mortgage principal.
There’s even an industry term – “rebound buyers” – that has sprung up to describe consumers who were burned by the downturn but are ready to purchase again.
But, the lending community follows rules set by government agencies that buy mortgages from banks, and those rules prescribe certain waiting periods after a foreclosure or short sale.
For instance, a borrower may qualify for an Federal Housing Administration-insured mortgage even after a short sale. However, that borrower must have paid on time for any installment debt payments or prior mortgage payments for 12 months prior to the new loan application, explains Lemar Wooley, a spokesman for the U.S. Department of Housing and Urban Development, the agency providing FHA loans.
For conventional loans, “generally, it’s two years after a short sale and seven years after a foreclosure” before a borrower can take another mortgage, says Callie Wolk, spokesperson for the government mortgage buyer Fannie Mae.
Shorter waits are available when borrowers experience extenuating circumstances. Check with local lenders or visit http://bit.ly/15w5Zy3.
While lenders can often help mortgage applicants with relatively minor problems, those with serious past financial missteps may need help from a credit counselor, Gilmore says.
A state-by-state list of agencies with counselors with training approved by HUD is at www.hud.gov. These agencies may charge a fee for buyers to qualify for a home purchase, but the charge must be “reasonable and customary,” Wooley says.