Were there bad times and bad credit in your past? Are you looking to make a fresh start and buy a home? Here are the guidelines for buying a home with the Fresh Start Loan Program.
* No waiting period after a bankruptcy (BK), short sale, deed-in-lieu, or foreclosure.
* However, the short sale or foreclosure must be completed, not pending, at the time of application.
* Chapter 7 BK must be discharged.
* Chapter 13 BK must be filed, but it can be open with payments being made on time. The court needs to approve the purchase.
* Property can be a detached house, a warrantable condominium, or a one-unit cooperative. (Not a manufactured home.)
* Debt-to-income ratio up to 50% DTI. (55 DTI with compensating factors, but I don’t recommend it.)
What’s the catch?
With such generous approval guidelines, is there a catch? Yes, you must have a good down payment to show that you are willing to take a risk on yourself. What does that mean?
If you aren’t willing to put money into the deal, then the lender feels like it’s too easy for you to walk away and leave them taking on the expense of reselling the property. They don’t want that! They want a home owner who is back on track financially and will make all their payments on time.
The silver lining is that the down payment can be gift money from family. Or, if you have 5% of your own money, the remainder can be a gift.
Here are the Down Payment Requirements
640 credit score = 15% down payment required
620 credit score = 20% down
580 credit score = 25% down
The credit score is the middle score out of three scores from Equifax, Experian, and TransUnion. The lowest score is ignored. The credit report is pulled by the lender.
How to Get a Loan with Fresh Start
Your mortgage broker can get the Fresh Start loan program for you through their wholesale channel. This is not a program you get at a bank or credit union. You get it through a broker. If you’re in California or Washington (and soon Oregon), then I can be your broker. For other states, find a broker in your area.
There are other non-prime loan programs available, but I wanted to highlight this program today, because of its generosity with no waiting period after a major derogatory credit event.
As always, thank you for reading my blog and passing it on to anyone who might benefit from the information.
“How soon after a short sale can I buy a house again?” is a question I’ve received a lot in the past week, so I will answer it now. It is a simple question, but the answer is somewhat complex. Without getting too complicated for a blog, here is what you need to know.
A Short Sale is Not a Foreclosure
A short sale is when the property is returned to the lender in exchange for canceling the loan. In a short sale, the home is sold, but the sales price did not cover the amount owed.
Getting an FHA Loan After a Short Sale
If you had no mortgage late payments in the 12 months leading up to the short sale, and if the short sale was a result of an acceptable extenuating circumstance, then you can get an FHA loan (3.5% down payment) one year after the completed short sale. However, if your short sale was on an FHA loan, then you will not qualify for this scenario.
FHA will grant a mortgage three years and one day after a short sale, providing you have good credit between then and now. You cannot have any outstanding debt with a Federal agency that is in delinquent status.
Getting a VA Loan After a Short Sale
You can get a VA loan two years from the close of the short sale.
There is no waiting period if you had zero late payments on anything — not on your mortgage nor on any credit cards, auto loans, or other consumer accounts, AND if the short sale was not a result of you taking advantage of declining market conditions. So if you chose to walk away because you were upside down on your mortgage, that disqualifies you for the no waiting period and you’ll need to wait out the two years.
Getting a Conventional Loan After a Short Sale
For a conventional loan, the waiting period is partly determined by your down payment. The more cash you can offer the lender as security, the less risk you are and the sooner you can buy another home.
20% down payment: two years after the close of the short sale to the new owner.
10% down payment: four years after the close of the short sale to the new owner.
5% down payment: seven years after the close of the short sale to the new owner.
Note that the waiting period does not start on the day that the lender agreed to the short sale. It starts on the day the short sale closed and the property ownership was transferred to the new owner. Thus, it could be months or even a year after the short sale was first started or agreed upon.
I have not forgotten about my promise to reveal a rip-off that some lenders, including credit unions, are doing now. I plan on writing about that in my next blog. I would have done it today had not so many people emailed me asking for the short sale rules.
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