Many folks have had unfortunate circumstances hit them and the downturn in the market a few years ago didn't help. Now things may be looking up and though they have been through a foreclosure or a short sale, there is still a good chance that they can get mortgage financing.
There are waiting periods and also the lender wants to see that good credit has been reestablished. For all the criteria to get approval on a new Fannie Mae loan, please read George Souto's post. You may even want to bookmark it for your clients or Pin it to your Pinterest boards.
Fannie Mae Waiting Periods For Foreclosures And Short Sales. While Foreclosures and Short Sales have substantially decreased in many parts of the County, here in Connecticut and other parts of the Northeast we continue to see more than our fair share of them, so it is important to continue to stay up on Foreclosure and Short Sale guidelines. The most important of the Foreclosure and Short Sale Guidelines when looking to purchase a home after going through a Foreclosure or Short Sale, is the waiting periods required by each Mortgage Program before a Buyer/Borrower can qualify to purchase again.
Because Foreclosures and Short Sales continue to have an impact in several parts of the Country I will cover the waiting periods required before a Buyer/Borrower can purchase a home again for the four major Mortgage Program over the next week. This information is important for both homeowners who are going through a Foreclosure or Short Sale, as well as those who have gone through a Foreclosure or Short Sale and are looking to purchase again.
In this first blog I will cover the Fannie Mae Waiting Periods For Foreclosures And Short Sales. The previous Fannie Mae revision to their Guidelines for Foreclosures, and Short Sales was on October 1, 2010, because of the increase in Foreclosure and Short Sale activity. Part of the reason for the increase in Foreclosures was due to what is generally referred to as a Strategic Defaults. As foreclosures have reduced Fannie Mae recently updated their Foreclosure and Short Sale guidelines in August 16, 2014 (thank you Randy Kirsch for making me aware of the update).
Fannie Mae does not make a distinction between Foreclosures where the homeowner can no longer make the mortgage payments, and voluntary defaults such as Strategic Defaults. The end result is those who lost their jobs, or had some other financial hardship which caused them to lose their home are treated the same as those who voluntarily choose to lose their home. This has always felt unfair to me, and in my opinion different penalties should be assess.
Also Fannie Mae does not make a distinction between a Foreclosure and a Short Sale when it comes to the waiting period. Again in my opinion this is also unfair, because in the case of a Short Sale, the Homeowner at least tries to minimize the loss to the bank, and a Short Sale cannot take place without the bank approving it. Some Credit Reports are starting to distinguish between Foreclosures and Short Sales, and the Fannie Mae Automated Underwriting System (DU) is also trying to recognize the two differently, but the end result is if a homeowner goes through a Foreclosure or Short Sale they are most likely going to have to wait 4 years before they can purchase a home again.
There are some exceptions as the chart below will show the waiting periods and exceptions for extenuating circumstances. But for most homeowners who have gone through a Foreclosure or Short Sale they will have a 4 year wait before they will be able to purchase again.
Previous Waiting Periods
New Waiting Periods
These changes apply to Conforming Fixed Rate, and Conforming Adjustable Rate Mortgage (ARM) Programs. Extenuating circumstances are nonrecurring events that are beyond the borrower's control, and result in a sudden, significant, and prolonged reduction in income, or a catastrophic increase in financial obligations.
If the derogatory information on a Borrower's Credit Report is the result of extenuating circumstances, the lender must substantiate, and document it. Examples of documentation that can be used to support extenuating circumstances include documents which confirm the event such as:
- Copy of a divorce decree
- Medical reports or bills
- Notice of job layoff
- Job severance papers, and
- Other similar documentation
Also documents that illustrate factors which contributed to the borrower's inability to resolve the problems that resulted from the event such as:
- 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.
The lender must obtain a letter from the borrower explaining the documentation. The letter must support the extenuating circumstance, confirm the nature of the event which led to the Foreclosure or Short Sale related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations.
The above chart hopefully will be useful as homeowners who went through a Foreclosure or Short Sale look to purchase a home again. Unfortunately even with the recent change to the Fannie Mae Foreclosure and Short Sale waiting period Guidelines many homeowners will still not be able to do a Fannie Mae Mortgage quickly. There are large Investors/Lenders who are still going by the previous Fannie Mae waiting periods and have not adopted the new waiting periods. So there is still a possibility Borrower will still have to wait the full 7 years.
Fannie Mae Waiting Periods For Foreclosures And Short Sales are clear cut, but Investors/Lenders have complicated them a little by not adopting the new guideline. FHA Guidelines For Foreclosures And Short Sales which I will covering the next blog are clearer. However, the Guidelines For Foreclosures And Short Sales for USDA/Rural and VA are not as clear, and I will cover those in the third blog.
Info about the author:
George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or firstname.lastname@example.org