Unfortunately life has a way of sometimes ending up messier than planned. Financial situations can change quickly and payments can become harder and harder to make.
According to the the Los Angeles Times , if you thought you were barred from buying a Chicago home after a foreclosure or a short sale, the rules are about to change.
The important thing is to remember that this sort of financial setback does not have to be permanent. Plenty of people have recovered and gone on to achieve their dreams as Chicago homeowners.
The question for anyone who has gone through a short sale or foreclosure is how long they have to wait before they can move on to a new loan. This depends on how your last loan ended and who you plan on getting a loan from.
Whether you went through a Chicago short sale or a foreclosure and whether you are looking to work with FHA, Freddie Mac or Fannie Mae all have an impact on how you must go forward.
FHA Loan Short Sales and Foreclosures
If you went through a Chicago short sale and plan on going with a Federal Housing Administration (FHA) loan, then your wait depends on whether you defaulted on your mortgage or not. Those who did not default can buy a Chicago home immediately while those that did will have to wait 3 years. With that said there is some flexibility. Those who build their credit back up and show that they defaulted because of factors that mitigate their personal responsibility can have their wait time shortened.
Anyone who went through a foreclosure and wants an FHA loan will face a standard wait of 3 years before their next loan. Still, the requirements reflect those of an FHA short sale. Loan seekers will be able to get a new loan sooner if they can show their foreclosure was caused by circumstances beyond their control. In addition, the better your credit is the shorter the wait will be.
Freddie Mac Loan Short Sales and Foreclosures
Those who went through a short sale and desire a Freddie Mac loan usually face a 4 year wait before their next loan. This can be shortened to 2 years if extenuating circumstances can be established. After a Chicago foreclosure the standard waiting period for a Freddie Mac loan is 5 years. The wait can go down to 3 years in the face of mitigating circumstances. Both periods are one year longer than their short sale counterparts.
Fannie Mae Loan Short Sales and Foreclosures
The Fannie Mae system is more complicated in this regards. According to the Fannie Mae Seller’s Guide the wait after Fannie Mae short sale is 2 years if 20% is put down by the borrower, 4 years with more than 10 and less than 20% down, and 7 years with less than 10% down. It can also be 2 years if the borrower can put more than 10% down and prove that there were mitigating circumstances.
With regards to Fannie Mae Loans after a foreclosure the wait is usually 7 years. This can be brought down to 3 years with proof of extenuating circumstances. After these 3 years there is an additional 4 years where additional requirements need to be met for another loan. The flat 7 year waiting period also applies to anyone looking for a second home,
Establishing Extenuating Circumstances
You may have noticed that some lenders will cut down your wait period if you can prove that your short sale or foreclosure was caused by extenuating circumstances. Think loss of job, illness, theft and the like. The circumstances must be both severe and unlikely. Lenders like to work with borrowers who can stay afloat even when they have to deal with major shake ups. Still, they realize that there’s only so much that most people can take at one time.
It’s also important to remember that it’s up to the borrower to prove that their problems were caused by forces beyond their control. Lenders hear many tragic stories and have reason to be skeptical. That’s why it’s important to provide proof of the circumstances you speak about.
One example of how a lender may look at extenuating circumstances is the FHA’s Back to Work Program. The program looks to help those who “can document that the delinquencies and/or indications of derogatory credit are the result of… any occurrence beyond the borrower’s control that results in Loss of Employment, Loss of Income, or a combination of both,” which results in a Chicago foreclosure or Chicago short sale. One step toward getting this assistance is providing the FHA with official, written proof of loss of employment.
Life is unpredictable. You can do everything correctly and still lose control of your finances when events beyond your control occur. Lenders can be persuaded but it will take more than just your word. That’s why it’s important that you find all the documentary evidence you can that helps prove that your financial troubles were not caused by your personal decisions.
Recovering From a Chicago Short Sale or Foreclosure
It’s helpful to look at things from the perspective of a lender. They are always looking to minimize their risks. Your short sale or foreclosure is a sign or risk, but it is not the only factor that should be taken into consideration. There are other goods that you can offer that will help balance out this sort of black mark as you reenter the Chicago real estate market.
One thing that you can do is work toward reestablishing your credit. Your credit rating is the number most lenders will turn to first when deciding if you are trustworthy or not. It probably took a hit thanks to your real estate issues but there are plenty of things you can do to start turning things around. The better you are at pay off existing debts the better lenders will feel about handing you additional responsibilities.
You can also start saving up money so that you can offer more upfront. Once again lenders are all about risk, and the more you can save up the less risk they’ll have to take on. To be sure this is a difficult step to take, especially shortly after an event like a foreclosure, but that’s the nature of the business.
Moving Onward and Upward
Everyone falls down more than once over the course of their lives, the difference happens when you get back up. Don’t let one mistake as a homeowner kill your dream. You can rebuild and move on to bigger and better things. It takes time, dedication and hard work but a foreclosure or short sale is no reason you can’t have another chance at buying a Chicago home.
Chicago Short Sale/Foreclosure Specialists – Call Now 1 -773-671-4663
Hands down, RE/MAX Associates are the most knowledgeable agents with the experience and community connections to assist you with in your home purchase across the globe. Customers going through the home buying and selling process know RE/MAX Associates as “The Real Estate Leaders®” and why no one in the world sells more real estate than RE/MAX.
Call us today for a list of Chicago homes for sale currently available in your area of interest. We offer a variety of comprehensive real estate services for buyers and sellers in the following counties:
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We look forward to speaking with you!
Adam Balawender, Realtor, CDPE
Real Estate Pro Chicago Remax, City
Cell Phone: 773.671.4663