How To Get A Mortgage After Short Sale (or Foreclosure)

The guidelines for new mortgages are changing. Everything we take for granted about home loans (and being a home owner) is being debated now in Washington D.C.

It’s clear that required mortgage down payments will increase along with other key elements that many of us have taken for granted. For example, there is growing support to eliminate the mortgage interest tax deduction. There are also political rumblings behind getting rid of the ‘As American As Apple Pie’ 30 year mortgage and replacing it with a 15 or 20 year term.

(REALTORS(R) remember, support the NAR. They are the only voice we have in D.C.)

Already a new approved guideline, the new QRM (Qualified Residential Mortgage) rules will be in full effect April 2012. (It’s widely believed that the QRM rules will force minimum down payments to increase to 20%). As Fannie and Freddie are ‘scaled down’ and their continued roles in the mortgage markets are in flux expect lots of heated debate about mortgage requirements. Stay tuned and be vigilant.

The question remains, given today’s guidelines what are the absolute bare-minimums to obtain a mortgage?

….and perhaps more interesting…how to obtain a mortgage immediately after a Short on…

By far the easiest mortgage to obtain is a FHA loan:

1) 3.5 percent down payment, based on the purchase price of the home (e.g., $7,000 on a $200,000 home), or a gift of that same amount;

2) 3 percent to 6 percent of the purchase price, on top of the down payment, for closing costs, or a credit from the seller of the same amount; and

3) 640 FICO credit score — the middle score of those generated by the three credit bureaus (some banks will lend to borrowers with middle scores lower than 640, but will require more than the minimum down payment).

Lenders will want you to document income, asset and job history documentation, current paycheck stubs, two months’ bank statements and two years of W-2 forms or tax returns, and:

  • a minimum of two years have passed since the discharge of a bankruptcy;
  • a minimum of three years have passed since a foreclosure;
  • anywhere from zero to three years have passed since a short sale, depending on the circumstances surrounding the short sale.