Last week Fannie Mae announced a couple of really big changes to the waiting periods required to purchase a home after a financial hardship that resulted in either Foreclosure, Short Sale or Deed in Lieu of Foreclosure. I wrote about Fannie Mae Waiving the Waiting Period for Foreclosure Included in Bankruptcy, which was a completely unexpected addition to this latest update.
Unfortunately, the ability to use the Bankruptcy date instead of a subsequent foreclosure date, does not appear to include pre-foreclosure events such as Short Sale or Deed in Lieu of foreclosure.
This was a nice change in policy that seems to be opposite of the simultaneous news that Short Sale or Deed in Lieu waiting periods are being extended.
While we did have advance notice that Conventional waiting times were going to be increased, this recent update filled in some of the details and timeline for when everything goes into effect.
For the past few years, Fannie Mae has treated pre-foreclosure events, Short Sale or Deed in Lieu of Foreclosure, differently than a foreclosure.
If you had a 20% down payment, and a minimum 680 credit score, you were able to buy in only 24 months from the completion date of the short sale or deed in lieu. For any loan applications taken after August 16th, 2014 this option goes away.
This is really the only change that could be construed as having a negative effect on new home buyers trying to get back into the market after a pre-foreclosure event.
If you had less than a 20% down payment, you could purchase using conventional financing with only 10% down, 4 years after a short sale or foreclosure with a minimum 680 credit score.
The reaction to the several changes announced by Fannie Mae on July 29th seems to be overwhelmingly discouraging. I have a different take on it, I mean, yes it’s kind of a bummer that you can no longer put 20% down and buy in 24 months, but all of the other changes are actually a loosening of current guidelines.
If you’ve had a short sale or deed in lieu, the waiting period before you’re eligible to buy with conventional financing has been moved to 4 years.
However, the 4 year waiting period does not appear to come with the same loan to value and credit score restrictions as did the previous guideline. If this is in fact true, that means that any homebuyer with a short sale or deed in lieu can buy in as little as 4 years with a minimum 620 credit score, and 5% down payment.
This change takes place for all applications taken after August 16th. We might have to wait until August 16th, when Desktop Underwriter (DU) is updated, to see what limitations might be applied, if any.
Conventional waiting periods after pre-foreclosure are still significantly better than the 7 year wait after a foreclosure that was not discharged through bankruptcy.
Here’s a quick overview of other Waiting Periods you should be aware of:
Buy After Bankruptcy
Buy After Foreclosure
Buy After Short Sale or Deed in Lieu