UPDATE: June 12, 2010
FANNIE MAE CHANGES WAITING PERIOD AFTER PRE-FORCLOSURE OR DEED-IN-LIEU OF FORECLOSURE
Fannie Mae has changed the required waiting period for a borrower to be eligible for a mortgage loan after a Preforeclosure or DIL of Foreclosure sale. Both policies will be effective July 1, 2010. The terms “short sale” and preforeclosure sale” mean the same thing to Fannie Mae – the sale of a property in lieu of foreclosure that results in a payoff of less than the total amount owed, which was pre-approved by the servicer.
Preforeclosure Sale: Current wait period = 2 years. New policy is 2 years with 20% down payment, 4 years with 10% down payment.
Deed-in-Lieu of Foreclosure: Current wait period = 4 years with additional requirements after 4 years up to 7 years. New policy = 2 years with 20% down payment, 4 years with 10 percent down payment.
ORIGINAL POST: June 14, 2009
QUESTION:
How long is the wait after a short sale or foreclosure before home ownership is possible again?
ANSWER:
It depends… Conventional, FHA and VA loan programs have different rules. The “shortest” wait period is 2 years. So if you had a short sale in 2007, the clock is ticking in your favor!
Here is an example of how the process can go very well when a family has a plan of action. In November of 2008 I was introduced to a couple who had a short sale in April of 2007 and wanted to know when they could qualify for a home loan. All of their questions were answered, advice about their credit implemented and the best financing program determined. Their wait period was 2 years so we used the remaining 6 months to prepare. In April of 2009 we had them pre-approved for a VA loan and making offers. They moved into their new home in June. A great success story!
If you’re wondering … how long do I have to wait before I can buy again … the answer depends on the kind of loan you’re applying for, the mortgage bank you’re applying with and your credit history after the event. The waiting period begins once change of ownership has been recorded. You will find this information in the real estate documents you were given when your home was sold. Look for a HUD-1 or Settlement Statement.
In the case of foreclosure, Fannie Mae requires 5 years to pass before becoming eligible for conventional financing. A minimum FICO of 680 and a down payment of at least 20 percent is also required. FHA says the wait is 3 years while VA applies the same rules as Chapter 7 bankruptcy … wait 2 years after discharge. If the foreclosure was on a VA loan, full entitlement may not be restored.
Prior to June of 2008, conventional rules treated a short sale the same as a foreclosure. That’s when Fannie changed their policy and created a new guideline called “Pre-Foreclosure”. It established a wait period of only 2 years. FHA views a short sale the same as foreclosure … wait 3 years. VA doesn’t have a seperate rule either so short sales and foreclosures are treated the same way … wait 2 years. In addition to the above guidelines most mortgage banks add additional underwriting rules that vary from bank to bank. Here’s something else to be aware of, bankruptcy or credit counseling after a short sale will affect your timeline and need to be taken into consideration.
The best way to figure out how long you will need to wait before home ownership is possible again is to meet with a mortgage professional and set up a plan of action. This will be a time to review your tri-merge credit report, evaluate FICO scores and learn how to raise them. You will also want to learn which loan program will be best suited for your future objectives and determine what actions need to taken during your wait period so when the time is right, you will have a successful home purchase.
Loan guidelines are constantly changing and we keep this post updated when new credit requirements are established.
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what would be in my best interest, short sale or foreclosure. I would like to by another home in san diego asap.
Hi Angelo –
To give you proper advice, we would need to talk about your financial picture. If you pursue either option you mentioned, you will not be able to buy another home “asap”. As stated in the blog post, the shortest wait period is 2 years for Conventional financing based on present lender guidelines.
Great post! I do many Jacksonville FL short sales myself and am a very active agent in the area. It has been a mess down here for the last few years and we are hoping and praying for stabilazation in the very near future.
After 30+ years of excellent credit, we unexpected lost a son-in-law which left our daughter alone with her 5 children ages 8, 6, 4, 3, and 6 months. We sold our business (end of our income) and moved to another state to help her. Our home went into foreclosure and subsequently sold for more than the mortgage balance. It has now been 26 months and we are wanting to purchase another home. Our credit score was very high before the foreclosure, and even now is still in the mid to high 600s. Can we find financing for a mortgage now and if so, where should we look?
Hi Ron –
I believe your financial hardship could be viewed as an “extenuating circumstance”. If an underwriter agrees, then Fannie Mae guidelines state the wait period is (3) years. The wait period begins once title to the home was transfered back to the bank that foreclosed on the property. Without an extenuating circumstance, the wait period is (7) years.
FHA’s wait period is (3) years after a foreclosure. With an extenuating circumstance it may be less than (2) years but not less than (1). If you are a veteran, the wait can be as little as (2)years for a VA loan.
Here’s where it can get confusing. Some loan officers will say the wait periods are longer. That happens because the lenders they use have added additional requirements beyond those of Fannie or FHA/VA. With that said, you need to get a strong referral to a loan professional to work with. They can help you establish a plan for success.
You’re on the right track by asking what it will take. Your entire financial picture needs to be evaluated. Questions need to be asked such as:
1) what is your source of income
2) what is your debt-to-income ratio
3) how much down payment do you have
4) does your credit history in the past (2) years show sufficient tradelines with on-time payments
5) and so much more …
The loan officer will be able to help you decide which financing program is best for you and the down payment you should plan for. With a strong letter of explaination, your loan officer could ask for an underwriter to give an “opinion” of your hardship and whether or not they consider it “extenuating”. A loan officer can do this now. Then you will have the certainty of knowing what it will take to qualify for a home loan. This is a step I take for my clients who have unique financial needs.
All the Best,
Barbara
We are 2 years post short sale. Lowest score is 697the we have 20% down and we still cant get approved for conventional we just got turned down today….. we had to short sale because my husbands job moved us out of state we couldnt afford two households and like everyone else our home was worth less then half of what we owed otherwise we would have just sold the house. We were not late on any other payments just the house. Just everyone says 2 years with 20% down and a credit score of high 600s will get you a loan but really it isnt true. Good luck though
Hi Jennifer –
It can be done. You may be working with a loan officer who doesn’t know how to make it happen. Fannie Mae guidelines clearly state the wait period is 2 years with 20 percent down. But … the devil is in the details.
What is the “date of last activity” appearing on your credit report for the mortgage involved? That’s the date you must be going by when calculating the 2 years.
Does your credit report show the mortgage record with a zero balance and settled for less than the full amount owed? I have seen some credit reports show the deficient balance as a collection item and that will kill the deal.
Was your loan application “date”, credit report “date” and Fannie Mae automated underwriting “date” (aka DU) ALL dated 2 years after the date of last activity listed on the credit report?
Are you getting pre-approved by a loan officer who works with a lender that sells loans directly to Fannie Mae? If not, then you are subject to lender overlays and a longer wait period.
I am speaking from experience. With a DU approval and a lender who sells Fannie Direct, a borrower can get a conventional loan (assuming all other loan info qualifies).
All the Best!
Barbara