Applying for a home loan after a foreclosure or short sale

With the current market conditions and the large number of home owners who are facing foreclosure or short sales, this question comes up often, "How long do I have to wait before I can qualify for a mortgage loan after I go through a foreclosure or a short sale?". Fannie Mae, who sets most conventional loan guidelines updated their waiting period guidelines this year. Below is a table showing the various derogatory credit event and the waiting period requirements:

(1) The maximum LTV ratios permitted are the lesser of the LTV ratios in this table or the maximum LTV ratios for the transaction per the Eligibility Matrix.

You can see that the minimum waiting time after a foreclosure is 3 years and for a short sale is 2 years with EXTENUATING CIRCUMSTANCES". So that begs the question, "What is considered Extenuating Circumstances?". Fannie Mae defines it as follows:

"Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations".

So a documented loss of job for an extended period of time would be considered an extenuating circumstance but you quiting a job because you hate your boss (although I can understand and sympathize) would not be considered an extenuating circumstance. The important thing in all this is keeping accurate records and documents regrading your extenuating circumstance. Fannie Mae says:

"If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.)".

If you you cannot DOCUMENT your extenuating circumstance, you would have to wait 7 years after a foreclosure or short sale to qualify for a home mortgage loan up to the maximum LTV. For short sales, you can qualify for a new mortgage in a shorter period of time but the maximum LTV is reduced (see chart above).

Also keep in mind that the above guidelines are for conventional loans. FHA has slight different requirements. As of today, FHA has a 3 year wait period. The 3 year wait period can be waived with extenuating circumstances and re-established credit