If you are a homeowner facing foreclosure or bankruptcy--or considering a short sale to avoid either--you need to be aware of the effect the action will have on your ability to get the credit you need to buy another home in the future.
Earlier this year, Fannie Mae updated its credit guidelines for borrowers who experience one of these circumstances. Here are some general questions and answers regarding the new guidelines:
Q: What is the time period after a foreclosure that a consumer must wait before being eligible to apply for credit to buy a home?
A: Five years from the date that the foreclosure sale was completed. And, there are some additional requirements that apply after five and up to seven years following the sale completion date, including:
· Putting a minimum of 10% down on the property and having a minimum credit score of 680
· Being ineligible to purchase a second home or investment property
Q: If the foreclosure resulted from "extenuating circumstances," is the borrower eligible for a shorter waiting period?
A: Yes. Fannie Mae considers extenuating circumstances to be "nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations." Borrowers whose foreclosure occurred as a result of such an event--and can prove it with documentation--may be eligible for a shorter waiting period of three years.
Q: What is the waiting period after a deed-in-lieu of foreclosure?
A: Four years from the date the deed-in-lieu was executed. And, there are some additional requirements that apply after four and up to seven years following the completion date. However, a borrower with extenuating circumstances may be eligible for a shorter waiting period of two years.
Q: What is the waiting period after short sale?
A: Two years, and no exceptions can be made for extenuating circumstances.
Q: What is the waiting period after a bankruptcy (all except Chapter 13)?
A: Four years from the discharge or dismissal date of the bankruptcy action, though a borrower with extenuating circumstances may be eligible after two years.
Q: What is the waiting period after a Chapter 13 bankruptcy?
A: Two years from the discharge or dismissal, and no exceptions can be made for extenuating circumstances.
Q: What is the waiting period after multiple bankruptcy filings?
A: Borrowers with more than one bankruptcy filing within the past seven years must wait five years from the most recent dismissal or discharge date, though a borrower with extenuating circumstances may be eligible after three years.
Q: What are the requirements to re-establish a credit history after a foreclosure-related action or bankruptcy?
A: In all cases, there are several requirements that must be met before credit can be reestablished. These include:
· Having all accounts current as of the date of the mortgage application
· Having a minimum of four credit references (one of which must be housing-related and cover the period following the foreclosure, bankruptcy or short sale)
· Having had no more than two installment or revolving debt payments thirty days past due in the last twenty-four months, or any payments sixty or more days past due since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action.
Of course, this is only a general overview of Fannie Mae’s new credit guidelines. For more detailed information, please visit their web site.
by Brian Wilcher
The Agent Center Staff Writer
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