Getting a Home Loan After Short Sale Time-frame Change

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More post short sale changes hit the mortgage industry in August of 2014.  This time, the changes came from  Dark Side.  Fannie Mae increased their post short sale mandatory wait from 2 years to 4 years (see below for exceptions to the 4 year wait).

Getting a Home Loan After Your Short Sale

First and foremost, there are 2 different pathways to go down regarding a Conventional home loan.  One path is Fannie Mae while the other is Freddie Mac.  Both investors rules are the same – most of the time.  However, there are subtle differences between Fannie and Freddie’s rules.  Freddie Mac’s take on post short sale qualification is quite different than Fannie’s.

The changes herein relate only to Fannie Mae.  Prior to August 2014, those with a short waited 2 year post short sale.  That meant that borrowers just 2 years after a short sale had Conventional Financing with Fannie Mae was available.  The only catch, the borrower’s down payment must be 20% or more.

However, after August 2014 every home-buyer with a short sale history must wait 4 years.  In addition, they must wait the 4 years regardless of down payment.  See below for exceptions to the 4 year Fannie wait.

What Can We Do to Adjust?

  • FHA has a 0-3 year post-short sale wait
  • VA does not have a post short sale wait
  • Freddie Mac may offer more post short sale flexibility
  • See if you are eligible for an exception (see below)

How Fannie Counts the Short Sale Wait

For those that are close to the end of the short sale sentence, how Fannie calculates the 4 years is of extreme importantance.  In fact, I can see the Christmas like advent calendar on your refrigerator!   Fannie counts short sale settlement date as day 1.  Your final/official settlement statement or Closing Disclosure from the sale will disclose this date.  Then, Fannie counts 48 months from that date before ending your punishment.

Exceptions to the 4 Year Wait – per Fannie Mae

Thankfully, there is a way around the 4 year wait for some.  Borrower’s that prove their short sale was caused by an “extenuating circumstance” have a way around the 48 month long holdout.  Upon documenting what an underwriter deems as an “extenuating circumstance” the wait can be halved down to just 2 years.   Here is a quote from Fannie describing their definition of an “extenuating circumstance:”

Circumstances that occur due to non-recurring events that are beyond the borrower’s control that result in a sudden, significant and prolonged reduction in income or catastrophic increase in financial obligations.”

Fannie Mae seems to fancy ambiguity.  After-all,  “non-recurring,” “significant,” “prolonged” and “catastrophic” offer little in the way of conclusive answers.  However, they do this so individual lenders can make decisions independent of constrictive rigidity from Fannie.   In fact, this vague language enables mortgage lenders to consider exceptions on a case by case basis.

By Jeremy House

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