Homeowners who have gone through a short sale or participated in a deed-in-lieu arrangement with their lenders may, beginning July 1, 2010, qualify for new mortgages under Fannie Mae programs in as little as two years from the recording of the short sale or deed-in-lieu arrangement. The current penalty period before recovery of credit is four years.
In order to qualify for the new loan after the two-year penalty period, the homeowner must:
- save a down payment of at least 20% towards their new home; and
- reestablish a good credit score under Fannie Mae's credit scoring system, which takes into account Fair Isaac Company (FICO) credit scores.
In special circumstances, a homeowner may be able to qualify for a new loan after the two-year penalty period without a full 20% down payment if they can prove that their short sale or deed-in-lieu was due to a special circumstance such as:
- job loss;
- divorce; or
- medical expenses.
However, as Fannie Mae is requiring homeowners seeking this shortened two-year penalty period to reestablish their good credit under a FICO-based scoring system, non-traditional credit - credit history which is not reported in FICO scores, such as rental, utility or cellphone bill payments - will be ignored, cutting out a significant portion of the good financial behavior most homeowners established after the financial trauma of a short sale or deed-in-lieu.