Short Sellers Are Back

Homeowners who entered into short sales after the U.S. Housing Crisis are back purchasing homes again.

Between 2010 to 2014, a significant number of foreclosures took place. Lenders exercised steps to take title to many homes – typically because borrowers were unwilling or unable to correct their late payments or defaults. Now, 7 years after receiving a Certificate of Title evidencing the property foreclosure sale, many borrowers can qualify for conventional financing (only 3 years to qualify for FHA financing).

Instead of allowing a foreclosure, however, many people took the time to sell their homes for less than the amount of the outstanding debt – at the approval of their lenders. As indicated in the following chart, these “short sale” arrangements require less of a waiting period to obtain a conventional mortgage than the waiting period for a foreclosure.

Years of Seasoning for Mortgage Qualification:

Conventional

FHA

VA

Foreclosure

7

3

2

Deed-In-Lieu

4

3

2

Short Sale

4

3

2


Provided 4 years have elapsed since the HUD-1 Closing Statement was finalized from a short sale, mortgage financing can generally be made available again (only 3 years for FHA, and 2 for Veterans Administration loans). These waiting periods are the same if, instead of a short sale, title to the property was voluntarily transferred to the lender in exchange for a release from the mortgage obligation – i.e., a Deed-In-Lieu of Foreclosure (DIL).

According to the Federal Housing Finance Agency (FHFA), short sales and DIL’s are down at least 65% since 2014 – and therefore a large segment of home purchasers are buying homes again, which is contributing to increased home values.

Here’s the Point: Many people are now able to qualify for mortgage financing, now that their short sale or foreclosure seasoning periods are over since the U.S. Housing Crisis.

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