USDA Loans and Previous Foreclosure

Date: June 6, 2011

As the first wave of homeowners that were impacted by the foreclosure crises in 2006 and 2007 start reentering the housing market special attention needs to be given to when these borrowers are eligible for their new loan. USDA Loans guidelines allow a perspective borrower to have had a foreclosure as recently as three years prior to the new loan application being taken.

This assumes no "extenuating circumstances", which technically may shorten the three year waiting period. An extenuating circumstance is usually defined as a situation beyond the borrowers homeowners control, such job loss or sickness, that is unlikely to reoccur. While the USDA guidelines allow for these scenarios most investors won't at this time.

The trigger point for defining when the foreclosure occurred will be the "date of sale." This can be tricky sometimes. Consider the following situations. If the previous foreclosure was included in a Chapter 7 Bankruptcy the bankruptcy may legally discharge the mortgage liability but often will not coincide with the lender taking back the property. Or if the previous loan was a FHA loan the trigger point will not be the date of sale but rather when the mortgage insurance claim was paid by HUD. Bottom line, working with an experienced Loan Officer is critical when evaluating if you are eligible for the new USDA Loan post-foreclosure.

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