• 17
  • October
    2011

Picking up the pieces after a bankruptcy, foreclosure or short sale can be a challenging ordeal. For those who want to purchase a home after these events, it may seem like an impossible task. While it certainly is not impossible to qualify for a mortgage after these events, neither is it an easy process.

Buyers who've been through these financial events have to understand that they need to get their credit back in order before they'll be able to qualify for a mortgage. They will also need to go through a waiting period lasting anywhere from one to seven years.

Keeping one's credit clean after a bankruptcy, foreclosure or short sale is imperative as many loan programs are very mindful of such matters. In some programs, even one late credit card payment could disqualify a potential buyer, even if they've completed their waiting period. One important piece of advice is to review your credit report after a bankruptcy, short sale or foreclosure and correct any errors.

In terms of the waiting period, it tends to be more definite for those who've been through bankruptcy. For those who've been through a short sale or foreclosure, it isn't so clear.

On one end of the spectrum are those who have been through Chapter 13 bankruptcy, have perfect credit after its completion, and who are looking to get a loan insured by the Federal Housing Administration. These folks will often only wait one year. On the other end of the spectrum are those who've been through foreclosure and want a conventional loan through Fannie or Freddie. These folks will have to wait seven years to qualify.

In between these extremes are two, three and four-year waiting periods. In some cases, waiting periods will be waived if the bankruptcy, foreclosure or short sale was due to factors beyond the buyer's control. It is technically possible for some buyers to avoid a waiting period altogether-such as those who've been through a short sale and want an FHA-insured loan-but this is rare.

The main thing to remember is that if bankruptcy, foreclosure or short sale is involved, there will be a rehabilitation period for those looking to qualify for a mortgage. This is not impossible to overcome. Just knowing the road ahead makes the journey easier.

Source: Fox Business, "How to Get a Home After a Foreclosure," Marcie Geffner, October 11, 2011.