Mandatory Waiting Period Reduced To 2 Years
It’s getting easier to get approved for a mortgage.
Following a similar change with FHA mortgage loans, mortgage-backer Fannie Mae has reduced the mandatory waiting period to make a mortgage application after a bankruptcy, short sale, or pre-foreclosure.
Borrowers no longer must wait 4 years before re-applying to get a mortgage.
Borrowers can now re-apply for a loan just two years after a bankruptcy, short sale, or pre-foreclosure. This is one year longer than the FHA’s minimum waiting period via the FHA Back to Work program, and a major improvement for conventional mortgage borrowers nationwide.
Mortgage guidelines are loosening across all loans.
Fannie Mae is the most recent publisher of mortgage guidelines to help borrowers with a history of poor credit because of bankruptcy, short sale, and pre-foreclosure.
New Fannie Mae Rules For Bankruptcy, Pre-Foreclosure, & Short Sales
Recently, Fannie Mae changed its mortgage rules for borrowers with a recent bankruptcy, pre-foreclosure, or short sale. The group has reduced its mandatory waiting period after such an event from four years to 2 years.
The change nearly mirrors a similar update from the FHA as part of that group’s Back to Work program.
Via FHA Back to Work, certain mortgage borrowers are eligible to apply for a loan just 12 months after a significant derogatory event.
“Significant derogatory event” is defined as any one of the following which may appear on a person’s mortgage credit report:
- A pre-foreclosure
- A short sale
- A deed-in-lieu of foreclosure
- A bankruptcy
- A mortgage loan charge-off
However, just because you qualify for a conventional mortgage via Fannie Mae doesn’t necessarily mean it’s the best loan for you. Significant derogatory events can affect a person’s credit score by 100 points or more, and conventional mortgage rates change for borrowers with generally-low scores.
If you’ve had a significant credit event, then, it’s important to compare conventional mortgage rate quotes against FHA mortgage rates to make sure you’re getting “the best deal”. FHA mortgage rates are typically lower than comparable conforming rates — especially for credit scores below 680.
FHA mortgage insurance premiums can add to the overall cost of an FHA loan, though.
Any mortgage lender can help you decide which loan program best suits your needs. Explore all available options — you never know how much you might save.
New Fannie Mae Guidelines For Derogatory Events
Fannie Mae has reduced its mandatory waiting period after a pre-foreclosure, short sale, or bankruptcy.
Prior to the change, Fannie Mae required borrowers to wait four years after a significant derogatory credit event before re-applying for a home loan.
That mandatory waiting period is now just 2 years.
The table below compares Fannie Mae prior policy against its current one; and against the FHA Back to Work program which may be more suitable for borrowers with less available downpayment.
FHA loans permit home down payments of just 3.5 percent. Fannie Mae loans typically require 5 percent down or more (although 3% down payment programs exist).
For a Fannie Mae loan, “extenuating circumstances” are situations which (1) occur one-time only; (2) are beyond the borrower’s control; and, (3) result in a sudden, significant, and prolonged reduction in income.
The label of “extenuating circumstances” may also be applied to situations in which a borrower is subject to a catastrophic increase in financial obligations.
Examples of extenuating circumstances may include divorce, illness, sudden loss of household income, and/or job loss.
Mortgage applicants wishing to apply for a loan using Fannie Mae’s Extenuating Circumstances program should be prepared to provide documentation in support of the claim. Valid documentation may include a copy of a divorce decree; medical bills; and, notice of job loss or job severance papers.
Borrowers should also be prepared to write a brief letter describing the hardship and how it directly led to the bankruptcy, pre-foreclosure, or short sale. The letter should make it clear that default was the borrower’s only reasonable course of action, given the circumstances.
Borrowers should also make it clear that the derogatory event was a one-time event, and that financial obligations have been paid on-time in the months since.