As a mortgage banker in Northern California, we have worked with many families that have experienced foreclosure. We have put together this post a resource of information on purchasing a home after foreclosure.
National Foreclosure Statistics
Over the last 5 years millions of families have lost their homes to Foreclosure. In fact its estimated that over 4.8 million homes as of March of 2013 were in the National Foreclosure Inventory. That means that 4.8 million families had to uproot their lives and find another place to live. This statistic does not even account for the short sales that were sold prior to the homes going back to the bank. Its estimated that 2.2 million homes have been sold via Short Sale in addition to the 4.8 million homes that went to foreclosure.
A lot of these families were uprooted from their home and had to find another home to place their families. The amount of stress, fear, tension, & out right anxiety this caused these families is hard to think about.
Its would be interesting to see the statistic of exactly which families actually chose to let their home go (Could actually afford their home) and which families had an unforeseeable circumstance that was outside of their control that had no choice other than to let their home go back to the bank.
The Cause of THE Foreclosure Epidemic
The banks know that that the number 1 reason for foreclosure is not from unemployment, unforeseeable circumstances, Ect. Banks know that the number 1 reason for foreclosure is from home owners being "upside down", or having negative equity in the home. Negative equity in your home means that your home is valued for less that what is actually owed to the bank. Fore example: A home owner my owe $300,000 on their home but the value of the home is now only worth $200,000.
Looking back on the last 5 years, if real estate stayed the the same and never decreased in value people would have done everything possible to keep their home and keep their equity. Unfortunately this was not the case. Negative equity cause people to give up and let their home go back to the bank even if they were able to afford their monthly payment.
The borrowers that had the unforeseeable circumstance that was outside of their control the government has given options to be able to purchase a home again with out having to wait the 3 year FHA waiting period. Here are some examples of some loan programs that are able to help borrowers purchase again with out having to wait 3 years after a Foreclosure or a short sale.
PURCHASING PRIOR TO THE 3 YEAR WAITING PERIOD
There are 2 exceptions the government has set in place to help families be able to purchase a home prior to waiting 3 years after their foreclosure or short sale. Some of these exceptions work and some do not. Let me explain:
99% of all residential loans are insured, purchased, or secured by the US Government. This includes FHA, USDA, Conventional mortgages, & VA home loans. Each one of these loans in some way are owned by the United States. The US Government however does not service ANY of these loans or they do not collect the payments for these loans. The Government pays banks or servicing companies to collect on their investment. Another interesting point is that the Government does not lend directly to the home owner. The banks make the loans then package them and sell all of the loans to the Government. The banks have no interest in lending Home Owners Money for 30 years at a really low interest rate. The banks lend the money to the home owner then sell the loan they just made to the government for a profit. The Government then pays the bank to collect the money for them.
Here are some of the programs that allow borrowers to purchase prior to the 3 year waiting period:
FHA BACK TO WORK PROGRAM:
On some of these loans, the government has set in place circumstances that allow families to own a home prior to waiting 3 years. Some of these allowances are very specific and some are not specific. For example: the government has put into place the Back to Work program for the FHA Loan. This program allows a borrower that lost their job or lost more than 20% of their documented income and have re established their credit to purchase after 1 year of their foreclosure. This might seem really good however most Banks including Chase, Wells Fargo, US Bank, Freedom Mortgage, Bank of America, and many others will not lend on this rule.. The reason is they will be taking a big risk. If they give this loan their could be a chance the government does not purchase the loan the the bank is stuck with the loan for 30 years. Remember the banks are not in the business to keep the loan. They make profit on giving the loan then selling the loan for a profit. This is why the Back to Work FHA program has not really helped a lot of Families.
USDA HOME LOAN Allows Families to purchase prior to 3 years:
The government has put into place the same rules for USDA loans as the FHA loan. However this time its a little different then the FHA Back to Work Program. The USDA loan is a very unique loan in that it can creates less risk to the Banks. The reason is the government will review the loan prior the the Bank giving the loan.
Here is an example: AAA Bank does USDA loans. AAA Bank is lending to a home owner that lost their home to foreclosure due to a circumstance that was outside of his or her control. The borrower was let go from his or her work and had a loss of income 1 year ago. AAA Bank is okay to take on the risk of lending to the borrower prior to the 3 year waiting period because AAA bank is guaranteed that USDA will purchase this loan prior to AAA bank giving the loan the the borrower. On FHA loans AAA bank has to give the loan to the borrower and then request the government for a guarantee to purchase. There is a period of time that the bank has to commit to the loan prior to knowing for sure they will be able to sell that loan to the government.
This is why over the last 3 years I have been able to close many loans for families that had an unforeseeable circumstances that were outside of their control. The USDA loan is a great tool to purchase a new home prior to waiting the normal 3 years as long as their was a circumstance that was outside of the borrowers control. Here are the 3 examples of Circumstances that borrowers are able qualify prior to waiting 3 years:
- Job Loss (if you were laid of from work)
- Loss of Income (Significant loss of income due to employer cutting back expenses)
- Unforeseeable Medical Expenses
If you are someone know has experienced a Short Sale or Foreclosure due to one of the above circumstances I will be able to help them purchase, without having to wait 3 years to finance the purchase a new home as long as they qualify with their income and credit. If you have any questions in regards to your own specific circumstance please do not hesitate to reach out to me for questions :)