What's the difference....

[RW771]

between a short sale and a foreclosure? Forgive me if it's in one of the above FAQ threads, I couldn't find anything relating to this. The reason I ask is last week I posted a thread inquiring about my husband and I buying a home after his ex wife was court ordered to refinance their home in her name (back in 2007), never did, and ended up short selling in July 2012.

Up until last week, my husband was under the impression that it was foreclosed on. He called WF and they verified that it was a short sale, not a foreclosure. I know both will destroy your credit, but is a short sale any better than a foreclosure? Our lender we talked to 2 weeks ago told us that due to him having a previous foreclosure, we'd have to wait 3 years before obtaining another loan, and even then, we would HAVE to put down 10%.

Now that we're finding out it's a short sale, does this change things? Would we still have to wait 3 years or could we possibly obtain a loan sooner? What about the 10% rule...is that still a lender deal or does that apply to short sales as well?

Forgive me for any confusion...I'm just trying to see where we stand and what the difference is. TIA!

[StartingOver10]

For a new FHA loan after a short sale; it is 3 years from the date the deed transferred from the seller to the new buyer (in your case 3 years from July 2012). I don't see any requirement to increase your down payment to 10%. Could it be the specific lender? - Yes (we call this a lender overlay).

For a conventional loan it is 4 years from the date of transfer plus the max LTV is 90%.

[RW771]

Thank you for your reply. I kinda thought the 10% down was lender specific but the guidelines my lender sent me sounded like it was an across the board type deal when dealing with a previous foreclosure/short sale....thanks for clearing that up.

I guess the main reason to go conventional vs. FHA (especially if the lender you use requires at least 10% down) would be just to avoid the pmi? Any other benefits?

[StartingOver10]

The underwriting criteria between FHA and conventional loans is different. Generally FHA allows higher ratios than conventional loans do and FHA permits your down payment funds to be gift funds. There are other differences. However, if you do have to put down 10% for your down payment for an FHA loan for that particular lender, explore the other guidelines required for a conventional loan to see if you qualify. The PMI for conventional is much less and can be terminated at 78% of LTV whereas the MI for FHA is much higher and lasts for the life of the loan.