Last week we looked at the impending and very welcome comeback of many "boomerang" home buyers to the real estate market in the next few years. Just a reminder that boomerang buyers are those unfortunate individuals who ran into financial difficulties during the recession. They may have suffered a big drop in their credit rating, possibly due to a short sale or foreclosure on their property.
If you are one of that number then one of the first questions you may be asking is exactly when can you be reconsidered for a home loan?
As always with financial matters, the answer is not straightforward. Much depends on the circumstances that you found yourself in when you got into difficulties. Beyond that, it also depends on which type of home loan you are seeking, plus your current position.
The overall term that covers the recovery period is known as seasoning. As the name implies, it refers to a specific amount of time that must pass before you can be reconsidered for home finance.
To give you some idea of the time frames involved, let's look the broad seasoning requirements for a conventional mortgage:
Chapter 7 Bankruptcy - 4 years from Discharge Date.
Chapter 13 Bankruptcy - 2 years from Discharge Date, 4 years from Dismissal Date.
Foreclosure - 7 years from Recorded Date.*
Short Sale/Deed In Law - 4 years from sale.
Loan Modification - No seasoning required.*
* - additional timing conditions may apply according to circumstances.
Other types of loan, such as Federal Housing Administration (FHA), Veteran Affairs (VA) or U.S. Department of Agriculture (USDA), have their own set of rules. In general there are shorter waiting times for Chapter 7/13 bankruptcy, foreclosures or short sales. There are longer periods when loan modifications have taken place, however, ranging from 1 to 3 years, according to circumstances. The precise criteria for seasoning timing also varies.
Apart from these general requirements, it is, of course, imperative that you ensure that your financial situation and current credit rating are in good shape too.
While getting back on the ladder isn't going to be easy, the great news is that there is hope and a clearly defined path back for those who fell victim to the slump years. Click here and contact our colleague Mark Smith of Summit Funding, Inc. for a more detailed and specific answer.