A common question I am often asked is, "How long do I need to wait to purchase a new home after I had to short sale my house; let my home go into foreclosure; filed bankruptcy; etc.?"
The answer is more grey than black and white for some borrowers now that there are "Extenuating Circumstances."
The one technical detail that often bursts a potential buyer's bubble is the 'date of the event.' Borrowers often think that the waiting period begins when the event happens - the date their home went into foreclosure or the date they filed for bankruptcy. The actual waiting period begins on the date the event was completed. The date the foreclosure was finalized or the date the bankruptcy was dismissed.
Here is a useful time table that will help you when your potential sellers and/or buyers are asking you the same questions.
So what about extenuating circumstances? After all not every borrower intentionally short sales their home, goes into foreclosure or needs to file bankruptcy. In July 2014, Fannie Mae modified the waiting periods for significant deoratory credit events due to extenuating circumstances.
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. While there is no specific list of what is acceptable as an extenuating circumstance, if the borrower claims that the derogatory event is the result of an extenuating circumstance, the lender must substantiate the bororwer's claim through documentation to confirm the event (divorce decree, medical bills/report, notice of loss of job, etc.)
The borrower must also provide a written explanation explainimg the relevance of the documentation, support the claims, confim the nature of the event and illustrtate they had no reasonable options other than to default.
The result of extenuating circumstances is that the waiting period for future financing is almost cut in half! Here is a comparison table of the standard waiting periods above with the modified waiting periods due to extenuating circumstances.
I hope this information is helpful when working with buyers and sellers who have previously experienced a financial hardship or are faced with one now!