Getting A Mortgage After Foreclosure

  If you are looking to finance a home purchase after a Foreclosure, you will need to know some important details before making application. We will cover Short Sales and Deeds in Lieu of Foreclosure in another post

First, it is important to know how lenders define a Foreclosure.

Foreclosure:     When a creditor (Lender/Bank) repossess/takes back a home that had a mortgage/note that was not being paid for a specified period of time.

  Once the Deed and Title to the property is reassigned to the Lender/Bank that held the note/mortgage on that property we have a Foreclosure. In some states the Lender/Bank must go through the court system and formally serve the owner with a notice of intent to foreclose; sometimes referred to as a “Lis Pendens.” If the owner is able to sell the home either through a short sale or regular sale, before the Foreclosure is complete, it is not considered a Foreclosure; it is considered a Pre-Foreclosure Sale and not part of the following rules and guidelines.

The following rules and guidelines are currently in place as of the publishing of this post. We will do our best to keep this post updated as changes are made. The easiest way to break this down will be by Loan Type. As always, if you have specific questions please email or phone us.

CONVENTIONAL FINANCING

  Currently there is a SEVEN year waiting period for borrowers with a Foreclosure on their credit to qualify for Conventional (non-Government) loan programs. The seven years are calculated from the date ownership was transferred. This would be the date that the new Deed was filed showing that the Lender/Bank officially owned the property.

  For those borrowers that had experienced an “Extenuating Circumstance” the timeline is reduced to THREE years. The definition of an Extenuating Circumstance is “ Non-Recurring and was beyond the applicants control which resulted in a sudden, significant and prolonged reduction in income or a catastrophic increase in financial obligations.” Divorce and the impact of the economy are generally not acceptable reasons. I say generally because in some situations a case can be made.

  For those borrowers that are past the Seven or qualify for the Three year waiting period; re-establishing credit is mandatory. Here are the points to keep in mind:

       Credit must be up to date as of the date of application

       Minimum of 4 Credit References open for 24 months

                1 Must be a Traditional Credit Source – ie: Credit Card or Car Payment

                1 Must be Housing Payment – ie: Rent

                2 References may be Non-Traditional – ie: Auto Insurance or Cell Phone

       No more than two 30 Day Late payment over the past 24 months

       No Late Housing/Rent Payments since the date of Foreclosure

       No New Judgments, collections, garnishments, liens or foreclosures since Foreclosure

FHA FINANCING

  Currently there is a THREE year waiting period for borrowers with a Foreclosure on their credit to qualify for FHA loan programs. The three years are calculated from the date ownership was transferred. This would be the date that the new Deed was filed showing that the Lender/Bank officially owned the property.

    For those borrowers that had experienced an “Extenuating Circumstance” an exception can be granted at any time within the Three year waiting period. For FHA, Extenuating Circumstance includes “serious illness or death of a household wage earner, but does not include the inability to sell the house due to a job transfer or relocation to another area.”

  The re-establishment of credit is necessary for borrower within the Three year waiting period.

VA FINANCING

   With VA guidelines the existence of a previous foreclosure does not disqualify the loan by itself. However, it has been our experience, that qualifying within 24 months has been difficult to accomplish. The VA has the following rules for qualifying inside the 24 month window:

    Applicant or Spouse has re-established credit since the date of Foreclosure
    and can show that the foreclosure was caused by extenuating circumstances
    beyond their control.

    Divorce is not generally viewed as being beyond the control of the applicant or spouse

  We hope you found this easy to understand. While it is as complete as possible in this format, there are other nuances that need to be taken in to consideration. We are happy to answer any specific questions you may have or assist you in obtaining financing.

Mortgage Rates Keep Going Lower

  Each time economic data is released or major events happen anywhere in the world, markets react in some sort of way. Lately, markets have been somewhat subdued as the reports have been mixed with both good and not so good data, although it has been positive for mortgage rates which keep going lower. Freerateupdate.com's daily survey of wholesale and direct lenders show that mortgage rates changed this past week for the better.
 
  Conforming 30 year fixed mortgage rates started the week at 4.750%, dropped by .250% and now are at 4.500%. 15 year fixed mortgage rates also dropped by the same .250% and are at 3.750%. 5/1 adjustable mortgage rates are at 3.000%, a drop of .125%. These are the best mortgage rates available with 0.7 to 1% origination fee for well qualified borrowers. After remaining stable for some time, mortgage rates seem to be heading lower at what is usually one of the busiest seasons of the year.

  FHA mortgage rates also repriced for the better. FHA 30 year fixed mortgage rates are at 4.250%, and FHA 15 year fixed mortgage rates are at 4.000%, both down .250%. FHA 5/1 adjustable mortgage rates are at 3.375%, down .275%. FHA mortgage loans offer a low down payment, but borrowers must be prepared to pay additional FHA fees and an upfront mortgage insurance premium which results in higher FHA closing costs (APR). FHA's recent increase in the annual mortgage insurance premium has resulted in a slow down of recent FHA mortgage applications.
 
  Jumbo mortgage rates also did well this past week which should be a boost for high end home buyers. Jumbo 30 year fixed mortgage rates decreased by .250% and are at 5.125%. Jumbo 15 year fixed mortgage rates went from 5.000% in the early part of the week to 4.500% in the latter part of the week. Jumbo 5/1 adjustable mortgage rates are at 3.625% which is a decrease of .250%. With outstanding credit, borrowers can obtain these low jumbo mortgage rates with 0.7 to 1% origination fee. This week's economic data had mixed results on MBS prices (mortgage backed securities) as data continued to roll in. MBS prices affect mortgage rates which move in the opposite direction. While new home sales came in stronger, home prices continued to decline. Consumer sentiment increased and personal income rose at the same time that unemployment claims increased. With gas prices heading up, everyone will be watching to see what impact this is going to have on the already slow economic recovery.

You Keep Your F — I’m Keeping My Dream!

  When Monty Roberts was in high school, his teacher asked the class to write about what they wanted to do when they grew up. Monty wrote that he wanted to own a ranch and raise thoroughbred racehorses. His teacher gave him an F and explained that the dream was unrealistic for a boy living in a camper in the back of a pickup truck. He would never be able to make this a reality. When the teacher offered the chance to rewrite his paper for a higher grade, Monty told him, “You keep your F - I’m keeping my dream.”

  Today, Monty’s 154-acre ranch in Solvang, California, is home to world-class thoroughbred racehorses, and his gentle Join-Up method of training horses (and kids) is the inspiration of companies around the world. Join-Up is a method of training horses without the use of pain or force. Monty studied the nonverbal communication between horses and gives a horse the option of accepting the leadership of a human, thus “joining up” rather than being forced into submission. He and his wife, Pat, have raised their own three children as well as forty-seven foster children, who return regularly to spend time on the ranch. This real-life horse whisperer inspired the book of that title and the Robert Redford movie that propelled Monty to fame and fortune beyond his wildest boyhood dreams.

  So, who’s been trying to talk you out of your dream? Who’s been telling you you’re crazy and it can’t be done? What level of success is that person experiencing? Did you ever notice that most naysayers and dream kickers are unhappy and unfulfilled themselves? Don’t let them bring you down to their level. Find people who are already doing or performing at the level at which you’d like to be. You'll find they will encourage and inspire you even more.

You’ll want to share this with your friends, family and co-workers

Did you know that the major credit bureaus in the US are allowed to release your credit information, mailing address, phone numbers and other information to any one of their credit bureau members who request it? They are called Promotional Pulls and you don’t even know when it happens . . . even if you have a monitoring service.

If you want to protect your information and be excluded from these un-known releases of your information simply follow these steps:

1. Call 1-888-567-8688
2. Dial Option  for ENGLISH or SPANISH
3. Dial Option #3 – it allows you to opt-out forever
4. The system will ask for your information
5. The last step in this process is the MAIL RESPONSE that they send you. You MUST complete this to complete the process.

This may sound like a lot to do, but think about it. Why would they make it hard to remove your name? Because they make MONEY by selling your information. Stop this practice and protect your private credit related information.

FOMC Statement: Continued Recovery

Great announcement from FOMC today. It echoes what we have been saying about Economic forecasting. Click the link below for full article.


FOMC: Inflation Still Transitory. QEII to End as Planned

Gas and Real Estate

At a recent Economic Update speaking engagement, we spoke about the fact that Gas prices could affect the Real Estate market. The trigger point is $4.25 per gallon. This has been deemed as the price that will make a noticeable reduction in the wallets of the consumer. We call it the “Hurt Factor” and this has played itself out many times before in our economy, especially with gasoline. I was not driving in the ‘70’s, but I do remember waiting in the Gas lines.

In the video below, Russ Haraus from Single Family DEvision, mentions Gas prices as making an impact. RealtyCheck also points out that Cash Buyers make up 35% of all transactions; the highest on record. The overall news in this clip remains very positive for the Real Estate market as a whole, and we continue to see positive news each day.

Chapter 7 Bankruptcy New Mortgage Qualification

The answer depends on the type of financing the client is looking for, so we break it down by loan type:

SEE UPDATE NOTE AT END DATED 6/24.

FHA Financing - Minimum of TWO YEARS from the date of discharge. They may qualify for FHA financing inside that two year window, but NOT BEFORE 12 MONTHS, if they experienced a hardship such as loss of spouse or severe medical condition which was beyond the control of the borrower.

It is important to note here that Divorce is not considered beyond the control of the borrower. The qualifying hardship will need to be supported by documentation such as doctor letter(s), CPA letter or employer letter.

CONVENTIONAL Financing - Minimum of FOUR YEARS from date of discharge. Unlike FHA, the client can not qualify for a hardship waiver until after the 24th month following the discharge.

In these cases the hardship must be deemed as non-recurring, beyond the control of the borrower and resulted in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. Again, these situations need to be well supported with documented proof.

VA Financing - Minimum of TWO YEARS from date of discharge. The Veteran or Veteran’s spouse with a bankruptcy within the two years may qualify for a waiver.

Proving credit worthiness after a bankruptcy is toughest with VA Loans. This credit worthiness must be demonstrated both outside the two year requirement as well as within the two years if a waiver is needed. Credit worthiness must be well documented with NO late payments and reestablished credit. This usually requires credit score assistance as well.

In all cases, the client must have NO Late Payments since the discharge date of the Bankruptcy. It is imperative that a thorough check of credit is done well before a letter of pre-approval is supplied or submission to an underwriter.

With the exception of FHA, all other loan types require the reestablishment of credit after the discharge. FHA does allow borrowers who do not wish to reestablish credit to use NON-TRADITIONAL Trade Lines. These are accounts such as auto insurance, cellular phone companies and rental payments. They need to be well documented for no less than 12 months with NO LATE Payments; and updated on the borrowers credit report.

IMPORTANT NOTE TO REALTORS - When working with a client that has a Chapter 7 BK, and you are going to contract prior to the discharge date, make sure you leave ample time for mortgage application. The client can not make application for financing until at least ONE business day AFTER the date of discharge.

ADDED 6/24 - IMPORTANT NOTE REGARDING DISCHARGE OF MORTGAGES - A recent determination has been made that if someone had a mortgage included in a Chapter 7 Bankruptcy discharge, that it will be regarded as a Foreclosure. The result in this ruling extends the period of time within which they will qualify as the same as listed under Foreclusre rules. CLICK LINK TO SEE POST ON FORECLOSURES
There will be some instantces when this is not the case based on the results of automated guideline results. Contact us for more details. 

We are always happy to answer questions even if you are going through another lender. Email us at questions@mortgage-safari.com or call us at 1-800-323-0954.