Recent estimates predict that as many as 25 percent of homebuyers over the next few years will be “rebound buyers” – those who have lost a prior home to short sale or foreclosure. A good understanding of the financing that’s available for these rebound buyers will go a long way to helping you maximize your closings in the coming years!
To begin with, the “date” that all lenders use is the date that the house was transferred out of the homeowner’s names. This date can easily be found on the Clark County assessor’s website. After that date, there will be two financing choices available. First will be non-traditional, or “2nd Chance” financing that is available as little as one day after the transfer. These non-traditional programs are broken down into two categories – private money financing and portfolio financing. Both of these programs will require your buyer to make a minimum of a 20% down payment.
Private money loans will typically be a little easier for your buyers to qualify for, and are available one day after short sale or foreclosure – but their rates and fees will be a little higher. Portfolio lenders usually have more stringent underwriting standards – but will probably be less expensive than a private money loan. Commonly, you may also see portfolio lenders with a “gradient pricing program” where the rates and fees may vary with the time after the event and/or the FICO score.
In the traditional loan world, there are defined “waiting periods” before you can qualify. This will be the next option if your buyers do not want to take a non-traditional loan, or don’t have a 20% down payment.
Let’s first take a look at waiting periods after a short sale. The shortest waiting period after a short sale will be to obtain a VA loan, where you can purchase a home (provided you qualify) just 2 years after the transfer. The next shortest waiting period is for an FHA loan. You can purchase with FHA financing 3 years after the transfer. Note that the maximum FHA loan amount in Clark County is $287,500… so there will be price limitations for some buyers. For a conventional loan (not Jumbo), your buyer will need to wait 4 years after their short sale. To obtain a Jumbo loan (loan amount higher than $417,000), there is typically a 4-7 year waiting period. You should be aware, though, that some Jumbo lenders who hold loans in their portfolios for high ‘net-worth borrowers can write their own guidelines and you may find substantially shorter wait times.
Now, let’s look at wait times after a foreclosure. Both VA and FHA maintain the same timeframes, 2 years and 3 years, respectively. But the big difference comes in conventional financing! To obtain a conventional loan (FNMA or FHLMC) after a foreclosure, your buyers will need to wait 7 years before they can qualify. For Jumbo financing, you’ll generally find 5-7 year waiting periods after a foreclosure. Again, some Jumbo portfolio lenders may waive this requirement.
Having an awareness and knowledge of these financing options after short sale or foreclosure can help you get more closings today and help to set up your buyer pipeline for tomorrow’s closings. Talk with a lender who is familiar with 2nd Chance financing and get the word out to your prospects. The future success of our real estate market depends on getting the most amount of people “back into homes of their own” – you can help make that happen!