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Rookie, Real Estate Pro in 48225

Can I get a FHA loan with a bankruptcy and short sale?

Asked by Rookie, 48225 Thu Nov 15, 2012

My chp 7 bankruptcy was discharged June 2006. My mortgage was included, but I continued to live in the home, and never reaffirmed the loan. My credit report has always reflected that the mortgage was discharged in bankruptcy. Subsequently, in 2010, the bank agreed to a short-sale in which the property was sold November 2010. After extensive research, I've read over and over that after the discharge, a foreclosure or short-sale cannot be listed on the credit report, because the loan was officially dead at that moment, which is the reason why the bank stopped reporting payment history. If that is the case, why are lenders telling me that I need to wait 3 years from Nov 2010, when the 4 year bankruptcy waiting period has been satisfied. My research says that the bankruptcy was first and take precedence over anything after the fact, otherwise its double dipping. Can anyone shed some light on this subject. I would like to get a FHA loan and need some help with finding a lender.

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Was the modification permanent or was it a temporary modification (trial period)? If it was within the trial/temporary period, it wouldn’t make a difference. However if it was permanently modified, and you made at least 12 months of payments on it and all payments on the permanent modification were on time, then you could be eligible right after the short sale.

To your second question, unless you fit an exception, yes.
1 vote Thank Flag Link Thu Nov 15, 2012
Rookie - because the short sale occurred in November of 2010, and unless the mortgage was current at the time of the short sale & for 12 months prior to the short sale, there is a 3-year waiting requirement after a short sale in order to obtain an FHA loan. Doesn't matter if the short sale was listed on the credit report or not, it's a fact, and it will come up during the course of underwriting when a copy of the foreclosure deed on the prior property is requested to determine when it was foreclosed on. I know the prior property wasn't foreclosed on, but an underwriter will think that when they see the mortgage was included in bankruptcy. So instead I am sure you will be honest with them and say that it was short sold in November of 2010 instead, and then you will be informed you need to wait until November of 2013 to apply for FHA financing.

Also, there is no 4 year wait after a bankruptcy with FHA financing, it's a 2 year wait for a Ch 7 BK.

"Double dipping" may be a term that is used in the bankruptcy world, but it has no applicability to mortgage financing. Mortgage financing always goes by the most recent event, which in your situation was the short sale. Be glad that it wasn't eventually foreclosed on instead, as then some lenders would require you wait the 12 month Michigan redemption period + 3 years after the foreclosure.

You are welcome for this advice, and now you know you will need to wait until November of 2013 to apply (3 years + 1 day after the short sale occurred to be precise) for FHA financing. When you apply, be prepared with a copy of the Final HUD-1 from the short sale to document it's date.

If you have a 20% down payment, then 2 years after the short sale you could apply for conforming financing, as Fannie/Freddie financing only require 2 years (with a 20% down payment, 4 years with a 10% down payment).

Shane Milne | Lending in all 50 states | NMLS #81195
1 vote Thank Flag Link Thu Nov 15, 2012
If you have had a short sale, foreclosure, or bankruptcy, CFS Mortgage will help you determine if you can qualify for a mortgage. Take the first step and visit http://www.whywaitbuytoday.com.
0 votes Thank Flag Link Sat Aug 17, 2013
I had a short sale last year and my Realtor recommend http://www.cfs-mortgage.com/flex for a home loan. I am very happy to be able to purchase again.
0 votes Thank Flag Link Sun May 12, 2013
The lender first gave me a modification, then agreed to the short-sale. From a technical stand point, is the loan considered current, and would I still have to wait 3 years?

Also, the mortgage discharge is scheduled to be removed from my credit report in 6 months, will I still have to wait til November of 2013?
0 votes Thank Flag Link Thu Nov 15, 2012
I believe you may be eligible now. At the very least you should be eligible three years after the short sale. The best way to know for sure is to talk to a local mortgage lender and see what they say. They may have some other suggestions as well based on your specific situation. When I say mortgage lender I do not mean one of the big banks, but someone smaller and local that specializes in writing mortgages. If you don't know one, call a realtor and ask to be referred. And good luck.
0 votes Thank Flag Link Thu Nov 15, 2012
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