Fannie Mae is announcing that on Saturday August 16, 2014, the waiting period for short sales will be extended to 4 years. Before this change, people who sold two years ago and had the ability to invest at least 20% towards their down payment were able to buy. Read Fannie Mae’s Announcement SEL-2014-10.
What this means:
If you had a short sale and planned to buy with a 20% down payment you can now no longer qualify using a Conventional loan. The program that would help you become a homeowner the quickest would be through FHA, but there are some drawbacks to this program. First, FHA allows you to purchase a home after 3 years, but the program comes with a hefty mortgage insurance premium, which is paid upfront through your loan as well as with your monthly payment. Secondly, this mortgage insurance will be included for the life of the loan unless a you buy with 10% down payment or you get a loan term of 15 years. Although there are drawbacks to FHA, it is still a great program to get you in to a home so that you can begin receiving tax benefits and ultimately increasing your net worth. You also have the option to then refinance out of the program once you meet Conventional guidelines. On the upside, if you are at the 4 year mark or close to it, the minimum down payment you’ll need is only 5%. It’s also important to know that you can purchase a home after 2 years with a Conventional loan if you put down 10% and can document that the reason you short sold the home was due to extenuating circumstances.
Not close to the 4 year mark?
There are still ways to purchase a home. For FHA, there are a couple ways that will allow people to buy right away. If you were on time with your payments while your short sale was being processed (at least 12 months) you can purchase right away; as long as you’re not selling and buying just to take advantage of the current market. The second method is with the Back-to-Work program also offered through FHA. This program will allow you to buy after 12 months, but only if you can document extenuating circumstances that caused either a 20% decline in household income or loss of employment for at least 1 year.
What if I had a foreclosure? Are there any new changes?
If you had a foreclosure you will be required to wait 7 years to buy using a Conventional loan. People who had a Deed-In-Lieu of foreclosure (DIL), which are usually treated the same as a foreclosure, can now repurchase after 4 years.
My mortgage was included in a bankruptcy, what are the waiting periods for this?
There is good news relating to this situation. Before, if a foreclosed mortgage was included in a bankruptcy the waiting periods would resort to the waiting period that extended out the most (foreclosure or bankruptcy). The new guidelines will allow a buyer to purchase a home based on the waiting periods of only the bankruptcy, which can be in as little as 2 years.
Recap… Old Guidelines and New Guidelines
2 Years with 20% Down Payment———— 4 Years with 5% Down Payment4 Years with 10% Down Payment———— 4 Years with 5% Down Payment7 Years for a Deed-in-Lieu of Foreclosure– 4 Years with 5% Down Payment- 7 Years for a Foreclosure ———————- Remains the same
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