Help clients buy after a credit meltdown(finished)
Help Clients Buy After a CreditMeltdown
Many life events affect the ability of your buyersto purchase a property. The most common ofthese are bankruptcies, short sales andforeclosures. While it is the mortgageprofessional’s job to determine who is qualifiedfor a mortgage and who isn’t, at the same time,you, as an informed real estate agent, should beable to determine how likely your potentialclients are to be able to continue with theprocess.
For clients who are coming out of any of thesesituations and seeking a mortgage program, youmay want to suggest they look first at theFederal Housing Administration (FHA)home loans and then atconventional mortgages.The FHA guidelines aremuch more lenient,although FHA loans arealso more costly to obtain than Fannie Mae orconventional mortgages after bankruptcies,short sales and foreclosures. In this article we’llfocus on FHA loans.
Regardless of which program your buyerschoose, the emphasis will be on what they aredoing now to ensure that events don’t repeatthemselves. A strong recent payment historyand proof they are not overextended areparamount in proving to a lender that they areonce again creditworthy enough to take on ahome mortgage.
BankruptciesThere are two basic types ofbankruptcies: one where debt iswiped clean (Chapter 7) andanother where there is apayment plan or a restructuring takes place(Chapter 13). In general, people will need to waittwo years to apply for a loan after the dischargedate of a Chapter 7 bankruptcy andone year after Chapter 13,providing they havedocumentation from thecourt or some type of courtappointee proving they’ve metall scheduled payments on time.
Short SalesDespite the fact that your client sold his or herhome through a short sale, the lender still tooka loss on the property. Whilelenders generally don’tview a short sale as beingas serious as a foreclosure,they do want to give potentialbuyers a cooling-off period before buyinganother home. Currently, waiting time for FHAloans is three years. In most cases, anddepending on their credit scores, borrowers willneed a minimum down payment of 10%.
ForeclosuresIn the hierarchy of things that will impact aperson’s ability to purchase a home, aforeclosure is at the top of the list.In this case, the mortgage wasbasically a write-off for theprevious lender, and unlikewith a short sale, the lenderis stuck with the propertyand all the expenses involvedin holding on to it.
Your client can apply for an FHA loan three yearsafter the foreclosure is complete. This is actuallymild compared to Fannie Mae’s guidelines,which include a waiting period that may be aslong as seven years. Fannie Mae may allow ashorter waiting time for extenuatingcircumstances such as an event that was beyondyour client’s control and adversely affected hisor her ability to pay the mortgage.
As these rules do change, ensure you are up todate by regularly consulting your mortgagepartner.