How To Qualify For A Loan After Short Sale?
By: Kimberly Hoffman
A short sale is an alternative to a foreclosure and is typically granted to homeowner who’s mortgage balance is higher than the actual value of the home. A homeowner can get out of the mortgage agreement without the mortgage lender pursuing for the deficient amount owed. Before you short sale your home you must first get your lender to agree to sale the home for less than what you owe. The short sale process can be time consuming and lengthy, requiring a fair amount of documentation, and financial review before a home can be listed.
The Aftershock and Recovery of A Short Sale
Homeowners who have completed the short sale process can qualify for an FHA loan once they have established a minimum credit score of 580 FICO, 3.5% down payment, and meet the required three year waiting period that FHA guidelines demands. They are some sub-prime lenders that will give approval one day from a short sale if you have a minimum FICO score of 640 and twenty percent down. Your FICO score will also take a hit of more than 100 points. However, this drop is temporary and should improve if you maintain good credit habits with no late payments on credit cards, auto loans, and retain low credit balances. Short sale is a good option if your underwater but does come with a downside if you are eager to purchase right away.
Buying a short sale…There are ways to reduce the added expenses to closing costs on a short sale:
- Look for a loyalty program.Some banks offer customers help with their closing costs, if they use the bank to finance their purchase. Bank of America, for instance, offers reduced origination fees for preferred reward members. It’s the bank’s way of offering a reward for being a customer.
- Close at the end the month.One of the simplest ways to reduce closing costs is to schedule your closing at the end of the month. If you close at the beginning of the month, say March 6, you have to pay the per diem interest from the 5th to the 30th. But if you close on the 29th, you pay for only one day of interest.
- Get the seller to pay.Most loans allow sellers to contribute up to 6% of the sale price to the buyer as a closing cost credit. It’s a way to seal the deal—and a tax-deductible expense for the seller. Don’t expect this to happen much in hot markets where inventory is scarce (which is almost everywhere these days).
- Wrap the closing costs into the loan.You’re already borrowing probably hundreds of thousands of dollars—why not tack on a few thousand more? Lenders charge more for this, but if you don’t have the cash, it’s a way to get into the house with less cash upfront.
- Join the army.Military members have closing-cost benefits that are often overlooked. Service members and veterans may qualify for funds to help them purchase a home. These benefits are not limited to the VA loan. The key is to do the necessary research to make sure you get everything you are entitled to.
- Join a union.AFL-CIO members get closing-cost discounts and rebatesof up to $2,500 on real estate transactions when they get a mortgage through Chase. But only if they live in New York.