By Glenda Brass, MBA
Over the past few months, I’ve had several individuals who either had to short sale a home or had a foreclosure ask me how soon they would be allowed to purchase a home again. Going through a foreclosure or having to short sale a home (selling a home for less than what is owed on it) can be a traumatic experience. But it doesn’t mean you’ll never own a home again.
Cleaning Up Your Credit
The first step on the road to recovery is to start repairing your credit. Even though these two events can trash your credit score--especially if you have a hardship that affected more than just the mortgage (like late pays on other obligations), you can still recover with strategic follow-up and focus. You’ll want to start by getting a copy of your credit report to ensure that there aren’t any errors or instances of fraud, which can further harm your score. A federal law allows you to get a free yearly credit report at www.annualcreditreport.com.
By far, the best way to repair your credit is to continue using it, but make sure you keep up to date with your payments. People often make the mistake of closing credit lines or cutting up credit cards when their scores take a major hit. But shunning credit altogether only leaves a large gap in your credit history, which is nearly as troubling to lenders as a bad credit history. Lenders want to see you using credit regularly and responsibly. To avoid late payments, set up automated payments. If you don’t have credit, consider opening a secured credit account; however, make certain they report your payments to the credit agencies.
Putting in Your Time
Repairing your credit is only one part of the waiting game. Time is the other part. For people looking to re-enter the housing market, the Federal Housing Authority (FHA) recently waived the mandatory waiting periods for homeowners with a short sale or foreclosure. Traditionally the wait was three years, but with the new program you can be back in a home in as little as one year.
This new criteria is part of the FHA Back To Work – Extenuating Circumstances program, which enables borrowers who have experienced financial hardship to be eligible for an FHA loan sooner. Under this program, you do have to prove that the short sale or foreclosure was caused by an economic hardship such as loss of income or employment. The other criteria is on time payments for the most recent 12 months. This demonstrates to the new lender that you’re back on track financially and have re-established your good payment history. Borrowers may also be required to take a HUD approved counseling course.
For many people, an FHA loan will be the quickest path back to homeownership. Fannie Mae and Freddie Mac loans have a longer wait time. Those lenders both require four years before you’ll be considered for a new loan. There are exceptions, which can speed up the process. For instance if you can prove that the foreclosure was the result of a death in the family, or an unexpected job loss, you might be able to qualify for a non-FHA loan in half the time.
Whatever the path you take back to homeownership, it’s one worth taking. I’ve spoken to people who’ve had such bad experiences with predatory lending and the eventual foreclosure of their long awaited dream that they swear NEVER to do it again. These people are convinced that homeownership was not in the cards for them. We NEED to get back in the game. We need more African American homeowners. Homeownership IS all it’s cracked up to be!