Many homeowners who at one point had a short sale or a deed in lieu of foreclosure are now back in the market looking to purchase again, but until now, many of these potential buyers have had issues obtaining new home loans, mainly due to credit reporting errors.
First, let’s look at the basics when it comes to buying after a new home after a short sale.
FHA home loans – the waiting period is three years after a short sale, foreclosure or deed in lieu of foreclosure.
VA home loans – the waiting period is two years after a short sale, foreclosure or deed in lieu of foreclosure.
Conventional home loans – foreclosures require a 7 year waiting period. However, four years after a short sale or deed in lieu of foreclosure you can purchase a new home with a conventional loan.
Now, the issue that many potential home buyers have had, is that even if they had a short sale or deed in lieu of foreclosure and waited the allotted time periods above, they have been unable to receive an automated approval for a new Fannie Mae home loan.
The automated or DU approval is the first step in the approval process for a conventional loan. And the reason that these approvals have not been issued is that often times credit reports are coded incorrectly or ambiguously by lenders after a short sale or deed in lieu of foreclosure. The result is that what should be noted as a short sale shows up on the credit report also as a foreclosure and thus the loan is not approved if the event occurred in the past seven years.
However, lenders are now manually allowed to override these incorrect findings for a borrower who had a legitimate short sale or deed in lieu of foreclosure.
So, if you were previously denied a conventional loan, because of a past short sale or deed in lieu of foreclosure and you have abided by the proper timelines above, it may be time to see if you can get approved again for a new home loan.
As always, it is best to speak to a licensed lender to see if you qualify for this or any other home loan program.