Changes For Borrowers With Short Sales
With the vast number of Short Sales occurring in Northern Nevada and on a national level in the past two years it seemed that it would only be a matter of time before concessions were made in the lending world to accommodate this phenomenon. The time has come. Fannie Mae has announced changes regarding the eligibility of a borrower looking to obtain a new mortgage after what they are calling a "preforeclosure event", a Short Sale or Deed In Lieu Of Foreclosure.
The new rules include changing the waiting period for these borrowers with variations depending on the loan-to-value ratio (LTV), and whether there were extenuating circumstances in their "event". Good news for the truly worthy Short Sale seller looking to recover and buy another home. For a borrower with a short sale or deed-in-lieu of foreclosure history without extenuating circumstances, the new waiting periods are 2 years with an 80% maximum LTV, 4 years with a 90% maximum LTV, and 7 years otherwise. If there are extenuating circumstances, the new waiting period is 2 years with a 90% maximum LTV ratio. That means if you meet the other requirements, you can buy a new home in two years with 10% down!
Requirements for re-establishing credit after a single derogatory event are also changed with the new rules. Fannie Mae is replacing the requirements related to the number of credit references and applicable payment histories with the waiting periods and other criteria. Credit score requirements will be dependent on the type of loan that is being sought. Your lender can advise you about programs and credit requirements so you know what you need cash and credit-wise to position yourself to purchase again.
There have been many theories touted recently about the effect of a Short Sale on a borrower's credit score. A recent CNN Report by Les Christie cited examples of impact on FICO Scores by Fair Isaac, developers of the FICO score system. The scenarios addressed the impact of foreclosure/short sale on hypothetical persons with a 680 and a 780 credit score. After a foreclosure, short sale or deed-in-lieu a 680 credit score goes to 575 to 595, and a 780 drops to 620 to 640. It is important to realize that with reasonable effort these scores can be increased to a figure suitable for borrowing to buy a new home after the two year waiting period has elapsed.
Our advice: These new rules will take effect July 1st this year. There are many details within the changes that you will need to get online, or from your lender if you don't want to plow through over a thousand pages of guidelines. If your Short Sale had/has extenuating circumstances see how they will affect you and be sure to monitor the changing lending industry for other changes. There are so many affected borrowers that undoubtedly there will be additional changes over the next couple of years by Fannie Mae, and others, to assist these borrowers in getting back into home ownership. The real estate market is stabilizing, but it could be awhile before it recovers sufficiently to return any substantial appreciation. If you can recover soon enough, you may be able to buy another home before home prices go up too much.
Considering the millions of former property owners affected by this economy, it is a reasonable assumption that there will be more consideration and concessions given to their distressed property circumstances that will get them back in the borrowing market. They represent such a large segment of the loan market that it is doubtful they will be locked out for long providing their extenuating circumstances are legitimate. Strategic default borrowers will have a longer recovery. When it comes to choosing professionals to assist you with your real estate needs... Experience is Priceless! Lisa Wetzel & Jim Valentine, CDPE, SFR, RE/MAX Realty Affiliates, 775-781-5472. carsonvalleyland@hotmail.com, www.carsonvalleyland.com
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Lisa Wetzel and Jim Valentine are the authors of this blog. Lisa, Jim and Jessie are experts in Carson Valley , Carson City and the tri-county area of Douglas County , Carson City and Lyon County. Call our team anytime at 775-781-5472 or 775-781-3704. To Search for Homes go to: Carson Valley Listing Book or visit our website at www.CarsonValleyLand.com
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