Fannie Mae has annouced changes for borrowers that have a foreclosure or a short sale. Due to the new changes with Fannie Mae, it is very important that current homeowners try to work with their mortgage servicers to avoid a foreclosure. FHA has different guidelines, but those may change in the future also – we never know what is going to happen, just what has already happened!
Fannie Mae has modified the waiting period that must elapse before a borrower is eligible for a new mortgage loan after a foreclosure. In the past you had to wait 4 years after a foreclosure, now you must wait 7 years! However, if there were extenuating circumstances, you may be able to get a new mortgage after three years. If there were extenuating circumstances, you must also have a minimum of 10% down and it can only be a purchase for a primary residence or a limited cash out refinance for all occupancy types.
If you have a bankruptcy, you must wait 4 years, the waiting period is reduced to 2 years with extenuating circumstances. If you have more than one bankruptcy, you must wait 3 years from the most recent bankruptcy.
If you have a deed-in-lieu of foreclosure, a preforeclosure sale or a short sale, you must wait 2 years and have 20% down, 4 years and have 10% down or after 7 years, you can follow the program guidelines and put the minimum down. If you have extenuating circumstances, you will have to wait 2 years and have a minimum of 10% down.
Extenuating circumstances are non-recurring events that are beyond a borrower's control that result in significant reduction in income. Examples can be a major medical incident or a job loss. For a job loss to be significant, it usually means that the company was a major employer in the town and that it will be very difficult for any other employment due the company leaving. Any extenuating circumstance must be documented by letters and other documentation showing the event happened.
Borrowers must also show re-established credit with a minimum of four tradelines and one must be a housing verification. There should be no late housing payments in the last year, especially since the foreclosure or bankruptcy. There should be no more than 2 30 day late payments on revolving accounts in the past 24 months.
FHA guidelines state that the borrower has to wait 2 years after a bankruptcy (as long as the house is not in the bankruptcy) and 3 years after a foreclosure.