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Three Things Homeowners Need to Know About Short Sales in Arizona

Fannie defines ALL Preforeclosure events as any one of the following:

  • Deed-in-Lieu
  • Pre-foreclosure Sale
  • Short Sale

Full Foreclosure retains a 5 yr waiting period
Note: New Waiting Periods Effective July 1, 2010

Preforeclosure Event Current Waiting Period Requirements
New Waiting Period Requirements

 

  • Deed-in-Lieu of Foreclosure – 4 years
  • Additional requirements apply after 4 years up to 7 years
  • 2 years – 80% maximum LTV ratios
  • 4 years – 90% maximum LTV ratios
  • 7 years – Standard LTV ratios
  • Preforeclosure Sale 2 years
  • Short Sale No specific policy currently exists
  • For extenuating circumstances, for all 3 event scenarios, it’s a 2-year waiting time and 90% LTV.

FHA is Different

Many people have recently asked what is the FHA waiting period after bankruptcy, foreclosure or a short sale. In answer, here are the FHA guidelines related to bankruptcy, foreclosure and short sales.

Chapter 7 Bankruptcy

FHA requires that the minimum waiting time is typically no less than two years from the discharge date. In addition, the borrower must have reestablished good credit or chosen to not incur new credit obligations.

Chapter 13 Bankruptcy

FHA states that a Chapter 13 does not disqualify a borrower from obtaining FHA financing as long as the borrower can show that at least one year of the pay-out period has elapsed under the plan and that all of the required payments (and mortgage payments when applicable) have been made on time. Also, the borrower must receive permission from the court to enter into the mortgage transaction.

Foreclosure

FHA states that the minimum waiting period is three years for a borrower whose house has been foreclosed or who has given a deed-in-lieu of foreclosure. It has been asked, How does FHA determine the date of the foreclosure? Sheriff’s sale? redemption? paid claim date (if past foreclosure was FHA)?

If the previous foreclosure was not a FHA-insured mortgage, the three year period will typically begin on the date of the sheriff / trustee sale. If the previous foreclosure was a FHA-insured mortgage, it will be reported on HUD’s Credit Alert Interactive Voice Response System (CAIVRS). CAIVRS is a Federal government-wide repository of information on those individuals with delinquent or defaulted Federal debt and on those for whom a payment of an insurance claim has occurred. In these cases, because the default is on federal debt most investors will not allow another FHA, VA, or USDA loan.

Preforeclosure Sale (Short Sale)

FHA does not currently have a policy regarding the time required to reestablish credit and obtain a new FHA loan after a short sale. However, the borrower must be able to qualify using standard FHA guidelines including the fact that they typically can not have any late payments on their mortgage for the previous 12 months. Although this is the official FHA policy, many lenders have heard that FHA currently will not insure a new loan application from a borrower with a short sale that is less than three years old.  Many of the individual banks and lenders have implemented their own policies regarding the waiting period after a short sale. I have seen a typical range between two and four years.  We anticipate that FHA will issue a written policy regarding short sales with more liberal guidelines in the near future.

If in a case of relocation and there was a short sale for the previous residence and there are not any lates on the credit report, FHA will allow a new loan without a waiting period. The key is relocation (although it has not been defined what the minimum distance might be. How the previous lender reports the short sale/mortgage to the credit bureau may determine the approval.