Fannie Mae Reduces Post Short Sale Waiting Period

In the past, people that have lost their homes during the financial crisis and managed to do a short sale to avoid foreclosure have had to wait four to five years to qualify for financing again to buy another house. Now, Fannie Mae is loosening its grip on its previous rules and allowing buyers to apply again in as little as two years.

Most borrowers that want to qualify for a new loan with the two year minimum will have to come up with a down payment of at least 20% or be able to prove that their mortgage problems were directly related to “extenuating circumstances”. What would those “circumstances” include? Loss of employment, medical expenses or divorce to name a few, could help you get a loan with a minimum of 10% down payment.

Fannie Mae’s industry competitor Freddie Mac, has different policies on the mandatory waiting periods after a short sale or deeds in lieu of foreclosure. If a buyer cannot prove their financial problems were caused by “extenuating circumstances” Freddie Mac will not approve their new mortgage in four years and up to five years for those who lost their home due to their own financial mismanagement.

Many think this is a positive move by Fannie Mae, but some things that will be requested from borrowers may complicate the deal. Buyers will have to rebuild their credit to the expectations of Fannie Mae’s automated underwriting system and will not be considered if there is not enough data on file for an accurate credit risk score.

The “catch 22” here is that most homeowners that lost their house are not going to have adequate or passing credit scores and history on file for Fannie Mae’s qualifications. Instead, Fannie may rely upon payment histories from things such as utility bills, telephone, rent and auto.