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How Long Before You Can Buy Again After A Short Sale? Fannie Changes Its Policy

April 21st, 2010 categories: Foreclosures / Short Sales

CalendarSeveral years ago, just as the economic meltdown was gaining momentum, Fannie Mae announced that it would look much more kindly on underwater homeowners who took steps to avoid foreclosure when it came time to buy again.

At the time, it proclaimed that those who sold their homes in preforeclosure sales would be eligible to obtain a new loan from Fannie in just two years, which was a far cry from the 7 year wait if they just walked away and let it go to foreclosure.

One thing that policy didn’t do, however, was specifically mention short sales. It simply said “preforeclosure sales.”

Most industry folks assumed that short sales (where the lender agrees to a reduced loan payoff so you can sell your home for its present value) fell under the “preforeclosure sale” umbrella.

However, Fannie never really clarified that. Until now.

Last week, Fannie Mae announced new guidelines that identifies the waiting periods for various preforeclosure events, including, for the first time, specific waiting periods for those involved in a short sale.

According to the policy changes that Fannie announced Apr. 14, the waiting period for short-sellers will depend on several factors:

1. Whether extenuating circumstances (i.e. job loss) caused the financial hardship that necessitated the short sale, and;

2. The size of the down payment when the short-sale seller is ready to buy again.

If there were extenuating circumstances, Fannie says that the short-seller will be able to buy again in two years, provided that he or she puts a minimum of 10% down at that time.

Without any such circumstances, the waiting period is as follows:

  • With at least 20% down – 2 years
  • With at least 10% down but less than 20% – 4 years
  • Less than 10% down – 7 years

Fannie’s announcement doesn’t elaborate on what constitutes an “extenuating circumstance;” it only mentions “loss of employment” as one example. Though, I suspect lenders will be given specific guidelines so they can make that determination.

What Is An Extenuating Circumstance?

My assumption is that some unanticipated event will have to have occurred in order to claim “extentuating circumstances.” If you had a job loss, a mandatory job relocation or military transfer or some family health emergency, I imagine you’d be able to make such a claim.

But if you’re short-selling simply because your payments went up, your property values went down or you needed a bigger house or wanted to move closer to your job, you probably won’t qualify for extenuating circumstances.

Now, even though these waiting periods tell you when you could be eligible to buy, that doesn’t mean you’ll automatically be able to do so at that time.

For, you’ll still have to meet all the normal underwriting guidelines (income, debts, job/bank deposit verifications, etc.). And while the short sale event may be forgiven after a period of time, other dings on your credit may not get the same special handling.

You Still May Have To Re-Establish Other Credit

So if you stopped paying other debts at the time of your short sale (or worse yet, continued to miss other payments even after the short sale was completed), you may have to wait until you’ve re-established your other credit before you can buy again.

Remember, too, that the policies Fannie announced last week are always subject to change. So if Fannie changes its rules again in 18 months, those who completed a short sale today fully expecting to be able to buy again in two years may find themselves having to instead follow yet another set of rules.

If you want more specifics on how these policy changes may affect your future ability to obtain a loan, be sure to consult with your mortgage professional. If you’re not presently working with a reputable local loan officer, feel free to contact us and we’ll be happy to suggest one.

And, if you’re contemplating selling your home as a short sale in our Solano County or Central Contra Costa County market area, we’d be happy to meet with you to discuss your options in a confidential, no-obligation environment. Please contact us to set up a private appointment.

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This entry was posted on Wednesday, April 21st, 2010 at 10:07 am and is filed under Foreclosures / Short Sales. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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