OfflineTwo recently released bits of housing market data are pointing to continued market improvement and a reasonably strong rebound. New home sales jumped in January to the highest level in 4-1/2 years. Continued record low interest rates and some improvement in the jobs situation are acting together to spur this recovery. In December the prices of single family homes had their biggest yearly gain in more than six years.
The S&P Case Shiller composite index of 20 metropolitan areas rose 0.9 percent on a seasonally adjusted basis in December, exceeding predictions of 0.5 percent. Housing prices in the 20 cities jumped by 6.8 percent year-over-year, also exceeding predictions. The Commerce Department reports that new home sales rose nearly 16 percent in January to an annual rate of 437,000 units. This was the largest increase in nearly 20 years.
With the housing markets improving and continued low mortgage interest rates, buyers are beginning to return to the market; but one group wasn’t expected ... “strategic defaulters.” A website, YouWalkAway.com, specializes in assisting borrowers in the legal aspects of strategic default. The website reports that nearly 80 percent of their visitors surveyed are saying that they want to buy a home again. They fall into a group of around 1.5 million potential homebuyers with a previous foreclosure.
Many of these people walked away from their mortgages considering their decision a valid business approach to the problem of negative equity for years into the future. Some would view them as reprehensible borrowers who ran from their obligations, while others just consider them to be responding to an unusual situation with a pragmatic approach to solve their problem.
The interesting news is that it may not be as difficult for these strategic defaulters to buy a home and get a mortgage as you might think. A recent survey by TransUnion, one of the major three credit bureaus, shows that consumers who defaulted during this recent market crash are far better risks for a new mortgage than those who went delinquent on multiple credit accounts and non-mortgage loans.
As a home owner, short sales will enable you to get financing to purchase another home quicker than if you are foreclosed upon but there is still a waiting period.
Here is what my latest research has revealed:
The latest Fannie Mae guidelines state that after a short sale, there is a mandatory waiting period of two years for a loan with an 80% maximum LTV (loan-to-value ratio), or four years for a loan with a 90% LTV.
FHA requires borrowers who weren't paying their mortgage when they sold their house to wait three years before they can qualify for a home loan. That time penalty may be waived in certain cases, including long-term job loss. There is no FHA time penalty for homeowners who made their house payments in the 12 months before their short sale. The size of a down payment can also shorten the waiting period.
The USDA loan program is a popular option for people who have had a short sale or foreclosure in their past because it is one of the mortgage programs with the shortest waiting periods and most flexible underwriting guidelines. The waiting period for a USDA loan after a short sale can be as little as 2 months in the right situation.
With a foreclosure, the waiting period is 5 years up to 7 years. If you have extenuating circumstances-- typically situations beyond someone's control, like a job loss -- it can be cut down to 3 years.
Fannie Mae has just upped the length of time it takes from the completion of a foreclosure sale until the borrower can get a new mortgage from four years to five years.
Perhaps the best option for obtaining a mortgage after foreclosure is with a federally insured FHA loan. The minimum time between the completion of foreclosure until when you can be approved for an FHA loan is three years -- whether or not there are extenuating circumstances. Still, FHA borrowers will have to show that they've been practicing good bill-paying habits since the foreclosure.