Cati Winkel

In today's economic climate, there are many people who have had to file for Chapter 7 or Chapter 13 Bankruptcy. I recently had a buyer ask how this would impact their ability to qualify for a loan.

If you filed for Chapter 7 bankruptcy, you will be able to qualify for an FHA or VA loan two years after your discharge date. This is contingent on your credit score and other factors that would go into a pre-approval.

If you filed for Chapter 13 bankruptcy, you are also able to qualify for an FHA or VA loan two years after filing, and you can still be in repayment as long as you have made 12 months of consecutive on-time payments but you need permission to obtain a mortgage not only from a lender but also from the Court and Trustee you are paying.

To qualify for a Conventional mortgage, your bankruptcy filing needs to have been at least four years ago.

If you have filed for bankruptcy and need assistance determining whether you can be pre-approved for a loan, first you should verify the date on your filing paperwork. Your next step would be to speak with a lender who can determine your qualifications based on employment history, income, debt, and credit score. If you're not sure of who to contact, your real estate agent can put you in contact with the right people.

When buyers are looking for a deal, they usually tell their agents they are interested in looking at foreclosures. But are they really? Buyers frequently mistakenly think they want a Foreclosure when what they really want could be either a Short Sale or an REO.

Foreclosures are properties that have actually gone through the foreclosure process - the borrowers defaulted on their mortgage, their lender took them to court and the house was taken away from them through the legal process. Usually these types of properties are in need of significant amounts of work, and very frequently they have been abandoned, and or vandalized - it's not uncommon to find they are missing the heating and/or air conditioning equipment, or windows have been broken, appliances stolen, holes in walls, or personal belongings left behind.

To buy a foreclosure, there may be a right of recission depending on the state the property is located in. In Kansas, the original owner has up to 90 days to pay the balance on the mortgage before the house is sold to the next buyer.

REO stands for "Real Estate Owned," which means that the borrower on the mortgage simply turned the property back over to their lender. These properties are usually in much better shape. Many of these homes are brand-new, and have never been lived in, in the case where builders were unable to pay the interest on the loans during construction. The lenders are the current owners of the properties and didn't have to pay the fees associated with the foreclosure process.

REOs are handled just like any other sale - there may be a longer wait time for approvals on your offer, but since the lender is the owner, they usually don't want to hold on to these properties for any longer than is absolutely necessary.

Short Sales are homes where the owner owes more on the house than what it's worth, or they realize they won't be able to continue making the payments on the house. In either case, they are usually still living in the house and are in process of working with their lender to sell the house for less than what is owed on it. As long as these sellers never got behind in their mortgage, it's possible they can still buy another house!

Buyers interested in purchasing a short sale property should be prepared to be patient - it could take 8-12 weeks just for your offer to be reviewed by the lender. With so many borrowers facing foreclosure, the banks are backlogged. If you have the time to wait, pursuing a short sale could be a great option for you to consider.