It's been a tough battle over the last 4 years for a large majority of homeowners in similar circumstances as property values tumbled. Many people have already lost their jobs because of the widespread financial hardship we have faced as not only a nation but globally. One of the results of the global crisis is the inability of homeowners to pay for their mortgages and sell their homes. It's easy to make your payments when there's a monthly income, but with so many people getting laid off, most can no longer afford to pay for all their monthly obligations. We've created this article to address the question by so many homeowners, "What will it take to purchase a new home after a short sale, deed-in-lieu, foreclosure and/or bankruptcy?"
Here are the current guidelines to purchase a home after a short sale, deed-in-lieu, foreclosure and/or bankruptcy for Fannie Mae, Freddie Mac, FHA, VA and USDA loans.
FNMA – Federal National Mortgage Association Guidelines (Conventional Mortgages)
Guidelines changed regarding these issues on June 25, 2008 with Announcement 08-16.
- Short Sale: FNMA refers to these as “Preforeclosure Sales” and requires a 2 year waiting period after the sale, with acceptable re-established credit.
- Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years. There is a 2 year exception for extenuating circumstances.
- Foreclosure: standard of 5 years waiting period, with minimum of 10% down & 680 credit score for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is a 3 year exception for extenuating circumstances.
- Bankruptcy: Chapter 7 requires a 4 year waiting period, but there is a 2 year exception for extenuating circumstances. Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).
FHLMC – Federal Home Loan Mortgage Corporation Guidelines (Convnetional Mortgages)
Guidelines changed regarding these issues with the release of Bulletin October 17, 2008. FHLMC isn't as user-friendly with their updates in comparison to FNMA. Instead of listing the specific changes in their Bulletins like FNMA, you must refer to their guidelines to find the changes. The ones related to our topic are found in Chapter 37-7.
- Short Sale: FHLMC refers to these as “Short Payoffs” and requires a 4 year waiting period after the sale, with acceptable re-established credit. There is an exception for extenuating circumstances of 2 years.
- Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years.
- Foreclosure: standard of 5 years waiting period, with minimum of 10% down for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is an exception for extenuating circumstances of 3 years.
- Bankruptcy: Chapter 7 requires a 4 year waiting period. Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).
FHA – Federal Housing Administration
- Short Sales, Deed-in-Lieu’s or Foreclosures: They are all treated the same. A great source for the guidelines can be found at http://www.fha-lending.com/CD/HUD%204155r-5.pdf. All require a standard of 3 years waiting period required. There is an exception for extenuating circumstances.
- Bankruptcy: Chapter 7 requires a 2 year waiting period, minimum 12 months with extenuating circumstances. Chapter 13 requires 12 months of timely payments and must have court’s authorization.
VA – Veterans Administration
- The credit requirements are the same as FHA. More information can be found at: http://www.homeloans.va.gov/veteran.htm
RD – Rural Development
A part of the U.S. Department of Agriculture. The credit requirements are mostly the same as FHA & VA. More information can be found at http://www.rurdev.usda.gov/CA/pdf%20files%20and%20documents/GRH%20UNDERWRITING%20GUIDEL.pdf
- Bankruptcy: minimum 3 year waiting period required, no difference between Chapter 7 or 13. Extenuating circumstances may be considered for exceptions.
I strongly recommend checking out some of the links I’ve included if you have questions. If your facing any of these events I recommend documenting the circumstances while the situation is taking place.
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