As published in the Savannah Morning News - 12 May 2013
Foreclosures and Bankruptcies - “Seasoned” buyers are buying…Part II
Last week we talked about rebound buyers, who are on a determined track of recovery following bankruptcy or foreclosure. These buyers have worked hard to rebuild their lives, their credit, save money and re-qualify for home ownership. They are also being “seasoned” to meet the time line requirements set by the following lenders: Fannie Mae/Freddie Mac; Department of Veterans Affairs; Federal Housing Administration.
“Seasoning” is less like herbs and more like wine, as buyers are not qualified for another home loan until they have met the minimum waiting period, the time in which they must demonstrate that they are a good credit risk. During seasoning, the buyers must perform: improve their credit scores, pay bills on time and lower debt. Some buyers have told me they took out a higher interest rate car loan just to show they can make the payments. Car payments are reported to the credit bureaus and, when paid responsibly, can help re-establish credit post-bankruptcy.
So, how long does it take to get seasoned? There are grey areas, or extenuating circumstances, that can shorten a time line requirement, including job loss or a prolonged illness followed by the subsequent death of the wage earner. It is up to the person who reviews the file to make an exception; there is no guarantee. Having said that, the big 3time lines basically look like this:
Fannie May and Freddie Mac: Foreclosure – 7 years; 3 years if extenuating circumstances are met. Chapter 7 or 11 Bankruptcy – 4 years; 2 years with extenuating circumstances. Chapter 13 Bankruptcy – 2 years from discharge date; 4 years from dismissal date.***
Department of Veterans Affairs: Foreclosure, Chapter 7 or 11 Bankruptcy – generally, not less than 2 years with foreclosures and bankruptcies filed under straight liquidation and discharge provisions. If the foreclosure was a VA loan, the buyer must have paid the VA for its loss before qualifying for a new VA loan. Chapter 13 Bankruptcy – After making 12 months of payments, or a court-appointed trustee and the trustee ,or the bankruptcy judge approves new credit.***
Federal Housing Administration: (Note: This program is most commonly used by rebound buyers, since the down payment requirement is only 3.5 percent, with a waiting period of 2 to 3 years after foreclosure). Foreclosure – 3 years;2 years with extenuating circumstances, and the borrower has reestablished good credit. Chapter 7 Bankruptcy – 2 years after the discharge with re-established good credit or no incurred new credit obligations. Chapter 13 Bankruptcy – To be considered, the buyer must be current on required payments for 1 year.***
So what happens when these buyers come knocking at your door? Remember, they are survivors dedicated to the American Dream. If they choose your home, be assured they will do everything they can to close. They have a different mindset from the norm, and if your home is “the one” for them, it means more than buying a house - it represents their new beginning. Their skin is in the game. Their hearts are in it. They are dreaming of sleeping in their own home, cooking in their own kitchen, planting their flowers and raising their kids. Without a doubt, when these folks are properly seasoned, they will buy a home again.
Next week in Moving Mom…”Seasoned” buyers get creative. Stay tuned!
***Information provided by Starkey Mortgage and Realtor.org.