If you’ve been in the unfortunate position of being on the Selling side of a Short Sale – our hearts go out to you. We are sure it was a difficult decision to make, but now that it’s behind you – maybe you’re ready to buy a new house in North Carolina?
We had a call this morning from a guy who left Florida in February of 2010, and came to Raleigh, North Carolina with a new job. The family is now settled, they love the area, and he called with this question.
Can I Buy A Home After A Short Sale With The USDA Home Loan Program?
There are some important features to the way a USDA Loan Underwriter will look at your mortgage application that differ from other mortgage loan programs. Because the USDA Home Loan program does not require a down payment – it’s inherently more risky than other programs, like FHA, and the credit underwriting for the program is more conservative as a result.
The USDA Loan waiting period after a Short Sale is 36 months from the date of transfer. I’ve looked online, and I’ve found forum comments on Zillow and Trulia that state you can get a USDA Loan with a shorter waiting period… but in North Carolina, the USDA Loan Underwriters will generally NOT approve a loan with less than 3 years from the date the title transferred. So for the guy this morning – the Short Sale was in February of 2010 – and we are well past the 36 month period.
Having said that… here’s the reason there are some conflicting reports about using the USDA Loan Program to buy a home after a Short Sale.
Many of the Homeowner’s we’ve talked to had a long, difficult short sale process. Unfortunately, the laws for Foreclosures and Short Sales and Evictions vary greatly from one state to another. Because of this, Banks do not have a “standard” guideline for reporting Short Sales on your credit report.
So, when you ask us if you can buy a home after a short sale with the USDA Home Loan Program – the answer is that we won’t really know until we pull your credit report.
Frankly, depending on the Bank you had your other mortgage with – they might report it as a Short Sale, and they might not. The Bank may have reported it to the IRS as a short sale… or maybe not – so it depends on how the other Bank is reporting the transfer that determines how long you have to wait to get a USDA Loan. We will be required to pull your Tax Return Transcripts, so it might not show on the Credit Report – but show up in the IRS Transcripts.
In some states there will be a deed in lieu of foreclosure in connection with the Short Sale, and that will viewed with the same 3 year restriction. If you have very high credit scores – and a VERY GOOD “reason” for the Short Sale – there’s some wiggle room for a USDA Underwriter to cut the wait to 18 months to 2 years.
It’s important to understand when we say that a USDA Underwriter has the ability to approve something – that we are talking about that one in a 1,000 case. The step in the approval process, is getting through the Automated Underwriting System called GUS. Depending on how the Bank showed the sale – this might be pretty easy. The USDA Loan actually goes to our Bank Underwriter, and then goes directly to the USDA Rural Development Office for an Underwriter there to physically look over.
That’s not the only thing you need to have nailed down – USDA Guidelines also state that any debts written off in the last 36 months are considered unacceptable credit – so if you had a Bankruptcy, you’ll have to wait 3 years as well.
Generally, you will need a 640 credit score, no late payments in the past 12 months, no new collections added to your credit report in the past 12 months and some open credit that is in good standing in order to get a USDA Home Loan in North Carolina.
Have more questions about Can I Buy A Home After A Short Sale With The USDA Home Loan Program? Leave us a comment below, or call Steve and Eleanor Thorne 919 649 5058 – we’d love to help you get into a home before the USDA Loan Eligibility Maps change on . Connect with us on Facebook or Find us on Google +