Rules Change for Financing After Short-Sale or Foreclosure
Change to Fannie Mae Rules For Financing After a Short Sale (8/16)
Effective with loan applications dated August 16, 2014 there is an important change to how Fannie Mae determines eligibility for home financing after the borrower has had a short sale.
Currently if the borrower had a short sale over 2 years ago AND has 20% down payment then the borrower is eligible for a new Conventional loan without having to document an extenuating circumstance. The new rule is more restrictive and no longer allows borrower’s to obtain financing after 2 years unless an extenuating circumstance can be completely documented (regardless of down payment). In an extenuating circumstance cannot be documented (as defined by Fannie Mae’s rules of what is “extenuating”) then the borrower must now wait 4 years to obtain financing.
In addition (effective with new loans as of 8/16/14) there is a change to qualifying for financing if the borrower has had a foreclosure. The new rule states that the borrower must wait 7 years after a foreclosure unless a documented extenuating circumstance can be documented. If the extenuating circumstance can be documented AND the borrower has at least 10% down, purchases a primary residence, and has re-established credit then the borrower will be eligible 3 years after the foreclosure. If the borrower has a foreclosure and the property they are buying will be a second home or investment property the waiting period is 7 years, regardless of the reason for the foreclosure.
Home buyers need to have a home under contract and loan application completed no later than August 15, 2014 in order to not be affected by these new Fannie Mae’s rules.