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short sale and deed in lieu waiting periods extended after 2014

Buy Again Sooner after Short Sale or Deed in Lieu of Foreclosure?

NOTE:  Short Sale and Deed in Lieu of Foreclosure guidelines were changed in August, 2014 – See new guidelines here


You can buy again sooner using Fannie Mae conventional home loan financing if you avoided foreclosure of a previous home through a short sale or deed in lieu of foreclosure.

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Buy Again After Short Sale / Deed in Lieu of Foreclosure

  • TWO (2) Years up to Maximum 80% Loan to Value | 20% Down Payment
  • FOUR (4) Years up to Maximum 90% Loan to Value | 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.
  • SEVEN (7) Years above 90% Loan to Value | with less than 10% Down Payment – Subject to Private Mortgage Insurance underwriting guidelines.

The good news is that it’s POSSIBLE

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Possible doesn’t mean it’s going to be easy.  One of the conditions of being able to buy again sooner  is that the short sale or deed in lieu of foreclosure is properly reported on your credit report.

This is important because Fannie Mae uses an automated underwriting system called DU or Desktop Underwriter.  Because this is an automated underwriting system, it will import your credit report and make a decision based only on what information is reported.

If items are reported in error, it could cause a false decision – on the other side, if items are excluded from your credit report (like the fact that foreclosure was avoided) this will also result in a false decision.

Also, it is not uncommon for investors like Fannie Mae to “allow” loans with exceptions or unusual conditions such as this, and many times they allow it with additional costs or restrictions to lenders, which means that sometimes these types of loans are not widely available and therefore it’s difficult to get information about them.

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Do you have 10% to 20% down payment?

If you’ve worked hard to re-establish your credit and saved up enough money for a down payment, this should be great news!  I would like to think that I do a pretty good job of staying on top of changes in the industry, but honestly, this one slipped by me for a couple of months.

If you think you may be eligible to buy again after short sale or deed in lieu of foreclosure and have a 10%-20% down payment, leave a comment below, drop me an email, phone call or chat live with a specialist here on the site.

Visit this article for more information about Buying Again after Bankruptcy, Short Sale or Foreclosure

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About Your Expert

Scott Schang

As a 19 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Gina says:

    My husband lost his job in 2009. In 2010 my office closed and we had to move to another state for me to remain employed. We contacted our mortgage company to try to get our loan modified with no luck. In the meantime, I was paying both the mortgage and rent. This took 70% of my takehome pay. After a few months, we were able to rent our home but for less than our mortgage. We applied for a short sale and was approved. It is now 2013, the short sale fell through. We then applied for a deed in lieu, in the middle of the process the bank sold our loan and we had to start over again. The deed in lieu was completed October 2015. We are now trying to purchase a home and the lender is requesting proof of hardship. I have the previous hardship documents I completed for the 3 mortgage companies…yes, my mortgage was sold more than once. What else can I provide? My husband did not apply for unemployment. He is a musician and started doing gigs and playing for our church to earn income.

    • Hi Gina,

      It is incredibly difficult to qualify for an extenuating circumstance exception, it does not surprise me that your lender is having challenges. The mortgage being transferred is not considered a hardship, and losing a job is not even necessarily considered a hardship. If you are trying to qualify for a FHA loan, hardship is limited to the death or permanent disability of a primary wage earner.

      Conventional may allow an extenuating circumstance exception if you can document that the loss of employment was completely outside your control (like a public company going out of business), but then the short sale would have had to take place very close to that date. Unemployment is typically one of the ways to document the hardship, so that’s going to make it that much more difficult.

      Finally, probably the best route here is to wait until October 2018 and apply for a FHA loan (3 years from the deed in lieu). You should not have any issues at that time.

      The best I can probably do is to introduce you to someone I know that has experience with these types of situations for a second opinion. If you would like me to introduce you to someone that I know and trust, shoot me an email to scott@findmywayhome.com and let me know what State you’re trying to buy in.

      Hope this helps?

  • Francine says:

    After loosing my job we realized that we would have difficulty with our mortgage payments. Contacted an attorney in New York, he advised us to file Chapter 7 Bankruptcy. The Deed was still in our name, and was transferred to another Mortgage Bank.
    The current Bank contacted us requesting us to sign off Document in lieu of the Deed. Can we get a mortgage to purchase a co-op.

    • Hi Francine,

      There are really 2 issues you have here. The first issue is when you are eligible to buy again after a bankruptcy and deed in lieu, the second issue is getting a mortgage on a co-op.

      To address the first question, there are waiting periods following in a financial hardship, and these waiting periods are different depending on the type of loan you’re applying for.

      Conventional financing is going to allow you to apply 4 years from the discharge of a bankruptcy, as long as your mortgage is current or your name is off title.

      FHA financing is going to require a 3 year wait from the date your name is removed from title (deed in lieu).

      The last challenge is finding a lender that will allow a mortgage on a co-op. Once you’ve met the waiting periods, it might take a little searching to find an investor that allows financing on co-ops.

      I can help you with this. If you are 4 or more years out from the bankruptcy, I can introduce you to a loan officer in your State that can help walk you through the deed in lieu and the new financing.

      If you would like an introduction, shoot me an email to scott@findmywayhome.com with the dates, details of your situation, and what State you’re buying in.

      Hope this helps?

  • regretful says:

    I’m currently applying for mortgage, want to sell my current home (hold title and mortgage) but husband had property that he did a deed in lieu on and am told that since I was on title (not mortgage and no financial obligations) that I will have to apply for exception and that will likely need to undergo the waiting period. How likely is it to get approved in this situation? –regretting I didn’t quit deed/title before deed in lieu. Have credit scores >720 and 20% down payment.

    • Hi Regretful,

      There are no exceptions for this, ownership is evidenced by being on title. If you and your husband were both on title when the deed in lieu occurred, then you are going to have to take that event into consideration.

      Was the that home included in a bankruptcy by any chance?

      Last thought, with a 720 credit score, and 20% down, there are lenders that will lend to you. The rates and fees are a little higher than a traditional mortgage, but it’s a good solution (in most cases) to get you into a home so you can advantage of the savings and tax benefits until you can refinance into a traditional mortgage.

      If you would like an introduction to a lender that has experience with these programs, shoot me an email to scott@findmywayhome.com and I will see if I can help.

  • Debbie says:

    When a home is included in the bankruptcy and then later foreclosed on after the BK discharge, is the borrower faced with two separate waiting periods before being eligible for a new mortgage.

    • Hi Debbie,

      That’s a great question, and the answer is: It depends on what type of financing you’re applying for. Fannie Mae (conventional) guidelines will allow you to buy after the 4 year bankruptcy waiting period, and ignore the foreclosure, as long as the mortgage was discharged through the BK.

      Using FHA financing, the foreclosure would be considered a separate event from the BK, and would require a 3 year waiting period before you could apply.

      When was the BK discharge? When did the foreclosure occur?

      If you are more than 4 years out from the BK, or more than 3 years out from the foreclosure, I can introduce you to a lender that has experience with these guidelines. If that will help, shoot me an email to scott@findmywayhome.com and I will see if I can point you in the right direction.

      Hope this helps?

  • sidcarol I know we spoke personally, but I want to address this in the comment thread in case anyone else has a similar question or experience.
    As you can see by your credit scores, time cures most things, especially things that are being reported inaccurately.
    The fact that 120 days late shows up on your credit report will not result in a lender denying you for financing, but it will raise questions.  
    Most lenders will ask for a LOE, or Letter Of Explanation regarding the deed in lieu.  Dig up your DIL paperwork showing that you are signing over title in exchange for extinguishing the lien (which is what a deed in lieu is).
    As far as JFCU turning you down, that sounds to me like it’s their own decision.  Under the circumstances discussed in the article, Fannie Mae will allow you to buy in 2 years following a Deed in Lieu as long as you meet the equity and credit score requirements.
    Hope this helps?

  • sidcarol says:

    My situation is that my husband and I filed for DIU in Feb of 2011 but our reports are showing 120 days and the loan of the house was paid off on two reports and still showing on one report.  My husband and I are separated now and I’m trying to clean up my credit to possibly buy again this year.  My lowest credit score is 694 with Equifax, 734 with TransUnion and 739 with Experian.  It looks like the credit files have July as being the last day of the DIU.  How is this possible when we filed in February and the 120 days which would mean payments missed from Feb to May 2011.  I’m concerned because I need to be out of my apt in August of this year and do not want to rent again.  Way too expensive.  How can I purchase and what types of loans would I qualify for.  I also tried to get a preapproval to see where I stood credit wise and my JFCU turned me down because of the deed in lieu staing I have to wait 4 years.  They use Fannie Mae, which I read was ONLY 2 years waiting time?  Help, I need direction and clarity.

  • kmbrlycc says:

    Hello Scott,
     
    I had filed for bankruptcy in October of 2010 after a job loss in 2008. I was struggling but the house value dropped so low and my attorney advised filing for a BK, which I did.  My mortgage was included in the BK with a small second (home equity loan).  that was discharged in January 2011.  I have been in my home and still am.  I have not made a mortgage payment since. I finally got a full time permanent positon in 2012. It pays enough to meet my student loans and car payment but not enough to pay my mortgage and I had already appealed to my mtg company four times previous to working with me on a loan mod. they refused. Anyway, I checked my credit report and in the middle of 2012 it showed my mortgage loan as closed, but I continued to get statements monthly for my house payment and called each time I had to change my contact info to the mortgage company.  I finally have found a buyer for my house and they have submitted the offer. My question is, since my credit report shows my mtg loan closed and my bk discharged, when will I be able to think about buying a house?  Does the credit report get another knock with the shortsale if it goes through?  Am I off the hook for this mortgage if it goes through andmy name is taken off of the paperwork for good? I have no idea where I stand. Thanks for your anticipated answer. Hope I was clear enough for you to answer me

    • @kmbrlycc Ok, here’s where you stand.  The bankruptcy would cause the mortgage to no longer show up on the credit report, but it’s still a defaulted mortgage.  The bankruptcy protects you from any legal or financial liability that could result from defaulting on the mortgage, but as you know, you still own the home.  If the bank agrees to allow you to short sell the home, you will have a waiting period before you are eligible for financing again.  As the guidelines stand now, you could buy as soon as 2 years using conventional financing with 20% down payment and a minimum 680 credit score (you would have cleared the conventional 4 year waiting period by that time).  With FHA, you can buy again in 3 years.  Keep in mind, both of these options require that you re-establish good credit and can show that the circumstances that led to the BK/Short Sale are not likely to happen again.  Full time employment and no late payments would be that proof.
       
      Hope this helps?

      • kmbrlycc says:

        Thank you for the information.  I spoke to a Real Estate Attorney who said that I could buy again as early as Janaury 2013 with good credit through FHA and had my name removed from the mortgage (short sale).  He also stated that FHA would allow me to buy sooner where you are saying that a conventional loan may let me borrow for a home in as little as two years.  .that doesn’t jive. Please explain..maybe I read a typo?
        Further, how does that short sale show up..as a judgement on my record?  Since the mortgage loan shows “closed” is the mortgage company allowed to open up that category again on my credit report or does it show up as something else?  How am I to know if the lender sees a different report than the one I do?  Sorry for so many questions, but I have to know all of this.  P.S. I live in MIchigan..are the rules different here?

        • @kmbrlycc I’m not sure what timelines the attorney is referring to, and guidelines were different in 2008 than they are today.
           
          It was not a typo – Conventional allows you to buy (with re-established credit) in 2 years from a short sale or deed in lieu of foreclosure.
           
          The short sale will not affect your credit.  The mortgage liability as far as the lender is concerned was discharged during the bankruptcy.  The short sale is a matter of public record and will be disclosed by you on the a new loan application.  
           
          The short sale would be a matter of public record and will be discovered during the underwriting process.  It’s not necessarily a “credit” issue, it’s an “underwriting” issue.  How the mortgage is reporting on your credit report is not relevant in the underwriting decision since it was discharged in the bankruptcy and most likely isn’t (currently) reporting at all.  
           
          These guidelines are for FHA and Conventional loans and do not change from State to State.

  • kmbrlycc says:

    Hello Scott,
     
    I had filed for bankruptcy in October of 2012 after a job loss in 2008 and continuing to struggle but paid my mortgage till the fileing of the BK.  My mortgage was included in the BK with a small second (home equity loan).  that was discharged in January 2011.  I have been in my home and still am.  I have not made a mortgage payment since. I finally got a full time permanent positon in 2012. It pays enough to meet my student loans and car payment but not enough to pay my mortgage and I had already appealed to my mtg company four times previous to working with me on a loan mod. they refused. Anyway, I checked my credit report and in the middle of 2012 it showed my mortgage loan as closed, but I continued to get statements monthly for my house payment and called each time I had to change my contact info to the mortgage company.  I finally have found a buyer for my house and they have submitted the offer. My question is, since my credit report shows my mtg loan closed and my bk discharged, when will I be able to think about buying a house?  Does the credit report get another knock with the shortsale if it goes through?  Am I off the hook for this mortgage if it goes through andmy name is taken off of the paperwork for good? I have no idea where I stand. Thanks for your anticipated answer. Hope I was clear enough for you to answer me.

  • InLimboInSanDiego says:

    Great information here! Here’s our situation. Clean short sale April 2010, but DU is reporting refer/caution and we don’t know what needs to be fixed. Lender can’t do a manual underwrite and can’t really help much further. The credit reporting agency used is reporting an MOP 9 for both our first and second mortgage, and they’re saying its coming from Experian. Equifax and Transunion is reporting a 5 (120 days late). From our research, Experian has their own definition of a 9, but the agency is just reading that 9 verbatim and not really caring about its true meaning. Is this 9 causing the “refer caution”? We also notice the Report Date is showing up as 5/11 with “OK” payments through 5/11, but close dates are all 4/10. No one is willing to fix the 9 and we’re trying to get the payment status updated, but we’re not sure what actually needs to be fixed. Are you familiar with our situation, or have any suggestions? Thanks!

    • Yes, I’m familiar with this situation. a “9” means foreclosure and it appears the credit bureaus are reporting the disposition of your previous mortgage incorrectly.

      To fix this, we would need to get documentation from your previous lenders stating the the home was settled as agreed for less than the amount owed. We can send this to the bureaus and request that they correct the reporting. This process is called a rapid rescore.

      Feel free to give me a call in the morning on my cell phone if you would like to discuss this further – 714-336-8286

      I assume you have a minimum 680 credit score and 20% down payment?

      • InLimboInSanDiego says:

        Thanks for the reply, and I just left a voicemail for you as well. To start off with yes, our credit scores are hovering around 700, and we do have 20% down.

        After about 3 weeks of calls between the Experian bureau and credit agency, it doesn’t appear to be a creditor reporting issue. As mentioned Equifax and Transunion are both reporting a 5, but Experian is reporting a 9. They explained that their 9 is not the same MOP 9 as “foreclosure” but instead they report a 9 but also have subcodes. I think the standard actually is 8 for foreclosure, and 9 for charge/off/collections. According to them, our report under them, shows no foreclosure, chargeoff, or collections, but instead their 9 means “settled”, which is accurate. Therefore, any dispute to the creditors wouldn’t really help, since at least to them they have accurate reporting of a short sale settled for amount less than owed.

  • Phil says:

    Hi Scott,

    Great info. I have a question about our situation. We relocated for work and had to short sell our house. The transfer of ownership occurred in Oct. 2008. After the short sale was completed, Wells Fargo proceeded to sue us for a deficiency judgment, which forced us into chapter 7 bankruptcy. The chapter 7 was discharged in Nov. 2009. Based on the FHA guidelines, we have applied for a mortgage (FHA) and were pre-approved and sailing through until underwriting got a hold of it 3 weeks before closing. They are saying that the deficiency judgement filed after the short sale was completed counts the same as foreclosure proceedings, therefore we have to wait until 3 years after the bankruptcy was discharged. In reading the HUD guidelines, it clearly states that the waiting period of 3 years (for a short sale with late payments, which was the only way we could get them to consider the short sale!) begins the day deed is transferred to the new owner (Oct. 2008) and the waiting period of 2 years begins at the time of chapter 7 discharge (Nov. 2009) meaning we are currently eligible. Am I correct? We are without a place to live in 3 weeks if we cannot get this resolved. I think their underwriter is misinterpreting the HUD guidelines. Thanks for your help!

    • This is curious Phil, the short sale would have extinguished the debt. I agree with you that the underwriter is misinterpreting the guideline.

      Keep fighting this and try to escalate to a senior underwriter. Ask them to produce the FHA guideline that states the mortgage debt can survive a short sale. By asking them to produce the guideline may force them to find the correct answer. In the meantime, find another lender!

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