1. Help Clients Buy After a Credit
Meltdown

2. Many life events affect the ability of your buyers
to purchase a property. The most common of
these are bankruptcies, short sales and
foreclosures. While it is the mortgage
professional’s job to determine who is qualified
for a mortgage and who isn’t, at the same time,
you, as an informed real estate agent, should be
able to determine how likely your potential
clients are to be able to continue with the
process.

3. For clients who are coming out of any of these
situations and seeking a mortgage program, you
may want to suggest they look first at the
Federal Housing Administration (FHA)
home loans and then at
conventional mortgages.
The FHA guidelines are
much more lenient,
although FHA loans are
also more costly to obtain than Fannie Mae or
conventional mortgages after bankruptcies,
short sales and foreclosures. In this article we’ll
focus on FHA loans.

4. Regardless of which program your buyers
choose, the emphasis will be on what they are
doing now to ensure that events don’t repeat
themselves. A strong recent payment history
and proof they are not overextended are
paramount in proving to a lender that they are
once again creditworthy enough to take on a
home mortgage.

5. Bankruptcies
There are two basic types of
bankruptcies: one where debt is
wiped clean (Chapter 7) and
another where there is a
payment plan or a restructuring takes place
(Chapter 13). In general, people will need to wait
two years to apply for a loan after the discharge
date of a Chapter 7 bankruptcy and
one year after Chapter 13,
providing they have
documentation from the
court or some type of court
appointee proving they’ve met
all scheduled payments on time.

6. Short Sales
Despite the fact that your client sold his or her
home through a short sale, the lender still took
a loss on the property. While
lenders generally don’t
view a short sale as being
as serious as a foreclosure,
they do want to give potential
buyers a cooling-off period before buying
another home. Currently, waiting time for FHA
loans is three years. In most cases, and
depending on their credit scores, borrowers will
need a minimum down payment of 10%.

7. Foreclosures
In the hierarchy of things that will impact a
person’s ability to purchase a home, a
foreclosure is at the top of the list.
In this case, the mortgage was
basically a write-off for the
previous lender, and unlike
with a short sale, the lender
is stuck with the property
and all the expenses involved
in holding on to it.

8. Your client can apply for an FHA loan three years
after the foreclosure is complete. This is actually
mild compared to Fannie Mae’s guidelines,
which include a waiting period that may be as
long as seven years. Fannie Mae may allow a
shorter waiting time for extenuating
circumstances such as an event that was beyond
your client’s control and adversely affected his
or her ability to pay the mortgage.

9. As these rules do change, ensure you are up to
date by regularly consulting your mortgage
partner.

10. Randy Bett
www.BetterGroupRealEstate.ca