Thousands of people who were hit hard by the housing bust finally have some good news. Recent changes made by the FHA allow consumers who went through a short sale to qualify for a home mortgage in a little as a year. The waiting period for getting a loan through Fannie Mae and Freddie Mac can be shortened to just two years. The criteria varies depending on the institution. Here is an overview.
With the FHA “Back to Work” Program, consumers who did a short sale may qualify for a home loan in as little as 12 months after losing their home, as opposed to the current three year waiting period. Here are the criteria:
- Their mortgage delinquency was caused by a 20 percent or more drop in household income that continued for at least six months.
- The loss of income was due to extenuating circumstances beyond their control and can be documented (loss of a job, serious illness, death of a wage earner.)
- They have had reestablished satisfactory credit for the past 12 months.
- They complete counseling from a HUD-approved housing counseling agency.
Fannie Mae’s new policy is an effort to help an estimated 2 million consumers whose short sales were misidentified as foreclosures by national credit bureaus. While a short sale and foreclosure are radically different, the credit bureaus have no reporting code to identify short sales, so many were coded as foreclosures. The repercussions are significant. Fannie and other financing sources have a two year waiting period for borrowers who completed a short sale, compared to seven years for those who went through foreclosure. Fannie Mae’s new policy, which takes effect November 16, will help many short-sellers reduce their waiting period from seven to two years. Here are the steps consumers should take to see if they qualify:
- Check their credit report to see if their short sale was miscoded as a foreclosure.
- Alert their loan officer and provide them with the documentation.
- Have their loan officer report the coding error to Fannie Mae. Fannie will run the loan application through its revised underwriting system to see if the consumer qualifies.
Freddie Mac also offers reduced waiting periods to homeowners who can provide documented extenuating circumstances for their previous mortgage delinquency. The normal waiting period for those undergoing short sales is four years; for foreclosures the waiting period is five years. For borrowers that can document extenuating circumstances, the wait at Freddie Mac drops to two years after a short sale and three years after foreclosure.
Before making any major financial decisions such as buying a home, it is always important to get professional advice relating to your own personal financial situation. Washington Property Solutions offers FREE real estate attorney and CPA consultations as part of our service. Call us at 425-381-2233 to schedule a free, confidential consultation.