Short Sale Waiting Period Extended

Monday, August 11, 2014

The Federal National Mortgage Association, commonly known as “Fannie Mae,” is the leading source of (conventional) funding for residential mortgages in the United States. Fannie Mae recently made the decision to extend the waiting period to buy a home after a Short Sale, from 2 years to 4 years. This change goes into effect August 16, 2014.

The changes are as follows:

Before:
You could buy 2 years after the Short Sale but needed 20% down.
You could buy 4 years after the Short Sale with 10% down.

After August 16, 2014:
You must wait 4 years to buy after a Short Sale and will need 5% down.

I suppose the silver lining is that Buyers will be required to put less money down, once the waiting period has passed.

If borrowers were never late on any mortgages, including first, second and private mortgages, or any credit lines, they can buy immediately after a Short Sale when using a FHA (Federal Housing Administration) or VA (U.S. Department of Veteran Affairs) loan. However, they must be able to prove that they are not taking advantage of a declining market.

One side note: Fannie Mae will still qualify borrowers to buy after a two year waiting period, if, they can put at least 10% down and have acceptable extenuating circumstances that can be documented. On fanniemae.com, extenuating circumstances are defined as:

“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.

If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.).

The lender must obtain a letter from the borrower explaining the relevance of the documentation. The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations.”

Source: https://www.fanniemae.com/content/guide/selling/b3/5.3/08.html Accessed. August 11, 2014.