With the increase in short sales in recent years in the current real estate marketplace, the standards and waiting periods for a homeowner to be able to qualify for a new home loan after a short sale have changed.
If you remember, as we reported almost a year ago, Fannie Mae did in fact change these standards, as the waiting period for the ability to obtain a new home loan after a short sale or deed in lieu of foreclosure was reduced from 4 years to 2 years.
However, let’s again revisit this rule change does include some caveats as well. The change announcement from Fannie Mae is below:
“To support overall market stability and reinforce the importance of borrowers working with their servicers when they have difficulty repaying their debt, Fannie Mae is updating several policies regarding the future eligibility of borrowers to obtain a new mortgage loan after experiencing a preforeclosure event (preforeclosure sale, short sale, or deed-in-lieu of foreclosure). The “waiting period” – the amount of time that must elapse after the preforeclosure event – is changing and may be dependent on the LTV ratio for the transaction and whether extenuating circumstances contributed to the borrower’s financial hardship (for example, loss of employment).”
In addition, here are the current specific charts below. They show that, while it is possible to get a new Fannie Mae conventional loan 2 years after a foreclosure, you will need a 20% down payment under normal circumstances of a short sale or a 10% down payment under extenuating circumstances (job loss, etc).
Of course, in addition the borrower must have re-built their credit history.
If you remember, as we reported almost a year ago, Fannie Mae did in fact change these standards, as the waiting period for the ability to obtain a new home loan after a short sale or deed in lieu of foreclosure was reduced from 4 years to 2 years.
However, let’s again revisit this rule change does include some caveats as well. The change announcement from Fannie Mae is below:
“To support overall market stability and reinforce the importance of borrowers working with their servicers when they have difficulty repaying their debt, Fannie Mae is updating several policies regarding the future eligibility of borrowers to obtain a new mortgage loan after experiencing a preforeclosure event (preforeclosure sale, short sale, or deed-in-lieu of foreclosure). The “waiting period” – the amount of time that must elapse after the preforeclosure event – is changing and may be dependent on the LTV ratio for the transaction and whether extenuating circumstances contributed to the borrower’s financial hardship (for example, loss of employment).”
In addition, here are the current specific charts below. They show that, while it is possible to get a new Fannie Mae conventional loan 2 years after a foreclosure, you will need a 20% down payment under normal circumstances of a short sale or a 10% down payment under extenuating circumstances (job loss, etc).
Of course, in addition the borrower must have re-built their credit history.
Deed-in-Lieu of Foreclosure:
- Current waiting period requirements- 4 years; Additional requirements apply after 4 years up to 7 years
- New waiting period requirements- 2 years – 80% maximum LTV ratios; 4 years – 90% maximum LTV ratios; 7 years – LTV ratios per the Eligibility Matrix
Exceptions to Waiting Period for Extenuating Circumstances:
- Current waiting period requirements- 2 years; Additional requirements apply after 2 years up to 7 years
- New waiting period requirements- 2 years – 90% maximum LTV ratios
Preforeclosure Sale:
- Current waiting period requirements- 2 years
- New waiting period requirements- 2 years – 80% maximum LTV ratios; 4 years – 90% maximum LTV ratios; 7 years – LTV ratios per the Eligibility Matrix
Exceptions to Waiting Period for Extenuating Circumstances:
- Current waiting period requirements– No exceptions are permitted to the 2-year waiting period
- New waiting period requirements- 2 years – 90% maximum LTV ratios
Short Sale:
- Current waiting period requirements- No policy currently exists specific to short sales
- New waiting period requirements- 2 years – 80% maximum LTV ratios; 4 years – 90% maximum LTV ratios; 7 years – LTV ratios per the Eligibility Matrix
Exceptions to Waiting Period for Extenuating Circumstances:
- Current waiting period requirements– No policy currently exists specific to short sales
- New waiting period requirements- 2 years – 90% maximum LTV ratios
Currently as we sit a few years into the housing downturn many homeowners are now already 2 years past a short sale or will be shortly. So it is important to remember that there are options available for buyers looking to once again purchase a home, even if they have had a short sale in the past few years.
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