Over the past several years, quite a few people have unfortunately experienced short sales, gone through foreclosure or filed for bankruptcy. Many of these people have worked diligently to clean up their credit and ask me how long they have to wait until they can purchase a home again. Below is a brief overview of the different occurrences and the typical waiting period for each.
There are two types of filings for a personal bankruptcy: Chapter 7 and Chapter 13. Chapter 7 wipes out all of the debt and Chapter 13 is essentially a court approved payment plan. The earliest someone can purchase a home after a Chapter 7 bankruptcy is two years from the discharge date. For a Chapter 13 bankruptcy, a person must have had one year of on time payments in the court approved payment plan and must receive approval from the court to purchase a home. Both of these require as little as 3.5% as a down payment.
Short Sale and Deed-In-Lieu of Foreclosure
If someone has had a short sale or a deed-in-lieu of foreclosure, they must wait two years from the date of last activity reported on the credit report to purchase a new home, provided they have 20% for a down payment. Veterans of the Armed Forces are exempt from this 20% down payment requirement. If you are not a veteran and do not have 20%, you will have to wait three years to buy and you will only need 3.5% for a down payment.
You will want to work with your mortgage professional to find out how the creditor is reporting to the credit repositories. If you filed for bankruptcy and a mortgage was included in the debts to be wiped out, most lenders will consider that a foreclosure. The same goes for a short sale. If you were in the process of negotiating a short sale and went 120+ days late on the mortgage payment before the short sale was completed, most lenders will consider that a foreclosure and you will be subject to the guidelines for a foreclosure and not a short sale. Veterans are permitted to buy a new home two years from the date of last activity reported on the credit report after a foreclosure. For everyone else, the earliest is three years from the date of last activity. Veterans do not need any money for a down payment, while 3.5% is the minimum for everyone else.
It is important to obtain a copy of your credit report to find out when the dates of last activity are. This is a free service I provide to my clients. The date of last activity is the last date the creditor is reporting activity on the account. The timeline begins from this date and may be very different from what you think it is, especially when a second mortgage was involved. A mortgage professional who knows the different options available for your situation is invaluable and they can guide you through the process.
Please feel free to contact me at (312) 285-6644 with any questions you might have. And if you are a neighbor in Bowmanville, please say hello!
Heather McRae is a residential mortgage lender. She was first introduced to the real estate industry in 2001. Heather lends throughout the State of Illinois and specializes in condos within the City of Chicago. She is a proud resident of Lincoln Square’s Bowmanville neighborhood.