Fast Refinancing After A Short Sale — Here’s How

fast refinancing -- mortgageQuestion: We did a short sale on our home in May 2012. We then bought a house with cash in Oct 2012. Can we get a fast refinancing on our current home?

Answer: A short-sale is a situation where a home has been sold for less than the mortgage debt, meaning the lender has taken a loss. As you can imagine this is not a result which thrills lenders so in your current situation there are several factors which will prevent an instant refinancing — but the good news is that in a few months it may be possible to get a new loan.

First, because you had a short sale your last loan is seen as a “not paid as agreed” account for credit scoring purposes. This will lower your credit as much as a deed-in-lieu of foreclosure or an outright foreclosure. For many lenders this is a huge red flag and an instant turn-off.

Second, your short sale took place less than a year ago. This means in lender eyes that you have not had enough time to re-establish your credit.

Third, what you want is cash-out refinancing. You’re not seeking a new loan to get a new rate or convert from adjustable-rate financing to fixed. This is another red flag for lenders.

Fast Refinancing

So what’s the good news? In August, HUD announced a new FHA mortgage plan which in some cases can allow troubled borrowers to get financing in as little as 12 months. Under the FHA “Back to Work” program the government will insure loans for those who have had a negative “economic event” such as a loss of income or a bout of unemployment. Prospective borrowers must show that the hard times they encountered were for reasons beyond their control, that their finances have recovered and that will take a HUD-approved counseling course. (Note to readers: This program ended September 30, 2016.)

The FHA “Back to Work” program is an opportunity for people hurt by economic events to again get mortgage financing. However, it’s not a free pass. Expect lenders to review mortgage applications with incredible zeal before giving the okay to applicants with a recent history of financial stress.


Syndicated originally to newspapers nationwide by Content That Works and posted with permission.

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