Too many people who are contemplating the short sale process, are afraid of the repercussions for their future home ownership. There seems to be a large amount of cynicism in most online articles regarding the potential for people to buy another home after completing a short sale. Typically, these focus on casting the borrower’s financial habits in a bad light. The truth is, any good realtor and short sale negotiator will be negotiating with the borrowers’ futures in mind. Also, considering that many sources estimate the percentage of borrowers who owe more than their house is worth at over 30%, there is little sense in stigmatizing these borrowers. The reality of this situation is that only a small amount of these homeowners have bad credit. Typically, as a result of admonishments warning that they will not be allowed to purchase another home for a period somewhere between two and seven years, these homeowners let their credit go.
At the end of 2009 there were no Federal Housing Authority rules explicitly prohibiting a homeowner from purchasing another home after a short sale. Despite this, many lenders were wary and sought clarification from the United States Department of Housing and Urban Development, HUD, on whether purchasing after a short sale was alright. HUD responded on December 16, 2009 by publishing a mortgagee letter that allowed lenders to issue mortgages to homeowners who had pursued a short sale. HUD did issue one caveat saying, “Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to take advantage of declining market conditions, and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.” In short, for those who have not taken advantage of the process, and who were current on their mortgage at the time of the preceding short sale, purchasing a new home is allowed. The letter also outlined a general waiting period of 3 years for those borrowers who had sold their home at a deficiency, or who were in default. The letter does, however, allow lenders some leeway in deciding to grant exceptions to this waiting period.
After the release of this document there was some question of whether lenders would be adopting the guidelines or would add so many underwriting guidelines that it would be nearly impossible to receive a loan. This never happened. In fact, many lenders jumped at the opportunity to offer these loans and adopted the guidelines essentially as-is. This is great news for short sale participants who are looking to buy a new home.
So now that we know that you can buy a home after a short sale, the question becomes how? Check back with our blog next week to find out what steps a potential homeowner should take when considering purchasing a home after a short sale.
If you are considering selling your house for less than you owe, call my office at (206) 282-4848 to schedule a consultation to discuss the short sale of your home and the potential repercussions on your future home ownership.