Getting A Mortgage After (Pre)Foreclosure Just Got Easier
UPDATE: My original post is a good indication I need to apply for a vacation. Sorry about the mis-information, here is an updated correction by Matt (thanks Matt!) and the correct information is in italics — Justin
What Fannie Mae has done is reduce the waiting period for those who agree to DEEDS IN LIEU OF FORECLOSURE from four years to two — THAT’S IT!
They are trying to encourage people to agree to deeds in lieu of foreclosure — not to give those they actually have to foreclose on a break.
The announcement also clarifies that Fannie Mae considers the terms “short sale” and a “preforeclosure sale” to be synonymous. The existing policy has been that you could be eligible for a loan again within two years after a preforeclosure sale. There was no official policy for a “short sale.” Now, they are saying the two years applies to short sales, too. NO CHANGE.
If you cannot pull off a short sale or agree to a deed-in-lieu, Fannie Mae will still require FIVE YEARS for borrowers who lose their homes through foreclosure to re-establish credit.
Borrowers may qualify in as soon as three years if they can document extenuating circumstances, such as the loss of a job, illness or divorce.
The minimum wait for borrowers who have filed for bankruptcy remains two to four years, depending on the type of bankruptcy filing and the borrower’s success in repaying their creditors.
See Chapter B3-5.3-07, Derogatory Credit Information, which begins on p. 419 of the current version of the Fannie Mae selling guide here:
With the record numbers of foreclosures that have happened (and continue to happen), one of the largest untapped markets of potential home buyers are people who have experienced a foreclosure.
The reason that many people who have a foreclosure do not become home buyers is because Fannie Mae guidelines state that you must wait at least 4 years before being able to qualify for a mortgage after foreclosure and 2 years after short selling your home.
But that all changed recently with an announcement by Fannie Mae that they would allow someone who had a foreclosure to qualify for a mortgage after only 2 years as long as they have put down 20 percent as a down payment.
The change will go into effect for any loan application taken after June 30, 2010 and will be updated in the Fannie Mae desktop underwriter software.
Two years with 20% down?
So the message I would give to anyone who is currently going through foreclosure is quite simple: save your money for the down payment on your next house.