Speed in recovery from a foreclosure or a short sale is dependent on multiple factors – reasons for past financial problems, and a person’s current credit score.  Would-be borrowers with good credit histories prior to a job loss are usually more likely to be approved for a new mortgage, rather than borrowers with poor credit who continue to make poor financial decisions.

Boomerang Buyers

Boomerang buyers are people who have lost their homes due to foreclosure or short sale, who are now, after recovering financially, able to purchase a home. “Most buyers I work with now, especially if they lost a home in the past, don’t want to get in over their heads,” says  Jami Harich, a real estate agent with Avery-Hess Realtors. “They start with a monthly payment that they want to stick to, and then I show them what they can find on the market that fits in that budget.”

When Can You Borrow Again?

When someone is able to borrow again is, in part, dependent on if the mortgage is a conventional mortgage or a government-insured mortgage. According to Steve Cohen, a senior mortgage banker with Talmer Bank and Trust, “FHA loans are easier to get after a short sale. In fact, some borrowers don’t have to wait at all if they never had any late payments on their mortgage. Borrowers who were in default on their loan have to wait three years to qualify for an FHA loan.” According to Hope Morgan, branch manager of Mortgage Network, VA loans that are guaranteed by the Department of Veterans Affairs have the most lenient rules regarding applying after a foreclosure – just a two-year waiting period required to then qualify for a new mortgage. A down payment is not required.

Conventional Loans

According to Cohen,when it comes to borrowers who have had to sell their homes in short sales, borrowers able to make a 20 percent down payment, are still still required to wait two years with conventional loans. If borrowers are only able to raise 10 percent down payment, the wait is four years. 5 percent down payment means a seven year wait. Borrowers who have lose their previous home in a foreclosure typically have to wait seven years to be able to qualify for a new conventional loan. “However, all of these waiting periods can be shortened with extenuating circumstances, such as a job loss, a divorce, a serious illness or the death of the person who was the primary wage earner,” Cohen says. The same guidelines apply to boomerang buyers as other borrowers –  minimum credit score of 620 or 640 for an FHA loan, a down payment, and a debt-to-income ratio that is usually under 43 percent.