The mortgage meltdown of the last decade created a cascade of distressed home sales in San
Antonio and Austin. From short sales to foreclosures, many homeowners found that they
owed more on their property than its value and were forced to sell short or allow the bank to
foreclose. The current crop of potential home buyers includes these distressed sellers. These
are responsible borrowers who found themselves caught up in the lending frenzy and now
they are eager to re-enter the housing market. But where to begin?
Preparing To Buy
Before you head out to look for that entertainer’s backyard, you need to prepare for the new
purchase. Unless you’re a Veteran, there are no more 100% financing options in San Antonio
or Austin. We’ll talk about types of financing a little later, but for now we’ll assume you need a
down payment.
The first step in planning for the home purchase is to talk with a lender. You can speak with
someone at your banking institution or find a mortgage broker. If you need a referral, then
family and friends could be a good resource.
When you meet with the lender, they can run your credit report and talk with you about your
current situation. You might be surprised to find that your score is higher than you expected it
to be. Many homeowners were forced to make a financial decision based on factors out of
their control. These are often referred to as strategic defaults. In most cases, the borrower
continued to make car payments, credit card payments and installment loans. This positive
history contributed to the faster recovery of their credit score.
If your credit needs a little work, the San Antonio and Austin lender can advise you about this
as well. They can tell you how to re-establish credit and typically how long it will take. Most
lenders have some form of computer program which allows them to manipulate the credit
data to see what steps you can take to raise the scores. This takes the mystery out of credit
recovery and your lender is your ally.
Based on your credit, income history and debt, the lender will explain how much down
payment and savings you will need to purchase that new home.
Financing Options
FHA Loans
A FHA loan is a mortgage insured by the Federal Housing Administration. FHA loans are
popular with borrowers because it requires a lower down payment and has less stringent
lending requirements for debt and savings (reserves). Borrowers pay for private mortgage
insurance (PMI) which protects the lender in the event of default.
Condominium and Townhouse Projects must be on the FHA approved list which checks for the
health of the Home Owner’s Association. Single Family Homes do not need specific approval.
Guidelines for 2017
- Foreclosure: You may apply for a FHA loan three (3) years after the date of sale.
- Short Sale/Deed in Lieu: FHA treats a short sale as a foreclosure so the waiting period is
also three (3) years. - Bankruptcy: You may apply for a FHA loan two (2) years after a Chapter 7 and one (1)
after a Chapter 13 Bankruptcy. - Credit: Credit must be re-established with no late payments older than 12 to 24 months
depending on the hardship.
VA Loans
A VA (Veteran’s Affairs) loan is a mortgage guaranteed by the US Department of Veterans
Affairs. The VA loan is available for eligible Veterans or their surviving spouses (if they have not
remarried) and allows up to 100% financing without PMI. As with the FHA loans, the VA loan
has more relaxed lending criteria and understands the variation of income that a returning
service member might have.
Guidelines for 2017
- Foreclosure: You may apply for a VA loan two (2) years after a foreclosure sale date.
- Short Sale/Deed in Lieu: You may apply for a VA loan two (2) years after a short sale unless the loan was a VA loan and then there could be restrictions.
- Bankruptcy: The waiting period is two (2) years for a Chapter 7 Bankruptcy. In the caseof a Chapter 13, you might be able to apply after 12 months of payment on the payment plan and if a judge approves the new debt.
- Credit: Credit must be established with a minimum credit score of 620.
Conventional Loans
A conventional loan is a loan which conforms to the guidelines presented by Freddie Mac and
Fannie Mae. A conventional loan is not guaranteed by the US government, although if the
value of the loan is higher than 80% of the property value, the borrower will pay PMI. These
loans can include a variety of mortgages from constructions loans, portfolio loans and even
sub-prime loans. These loans are underwritten with guidelines which allow the loan originator
to sell these loans to either Freddie Mac or Fannie Mae.
A conventional loan is normally expected to have a 20% down payment, but in recent years
we’ve seen 10% and even 5% down loans.
- Foreclosure: You must wait seven (7) years after a foreclosure to apply for a
conventional loan. A foreclosure that was included in a Bankruptcy the waiting period is
four (4) years. - Short Sale/Deed in Lieu: You may apply for a Conventional loan four (4) years after a
short sale that was not included in Bankruptcy. - Bankruptcy: You may apply for a conventional loan four (4) years after a Chapter 7
Bankruptcy and two (2) years after a Chapter 13 discharge. - Credit: Credit must be re-established with a minimum credit score of 620.
Purchasing a new San Antonio or Austin home after a Short Sale, Foreclosure or Bankruptcy is
within reach. If you’re ready to buy, talk with a lender and local real estate agent to start
planning. They are the experts who can guide you in the preparation stage as well as when
you’re ready to house hunt. Understand your options and learn what the steps are to ready
your financial portfolio so that you will sail through the lending process and close on your new
home.