Many homeowners are in dire straights. Hit with hardships, they can’t make the mortgage payment. Your to far upside down to sell, giving the house back to the bank has it’s consequences. By understanding the consequences homeowners have the power to control their financial future. They will be able to determine how quickly they can re-establish their credit and buy another home.
Fannie Mae has established credit guidelines for borrowers who experience one of the following circumstances. And, in general, the wait time will now range from two to five years.
Foreclosure and Multiple Bankruptcies – A 5 year wait period before you can purchase a primary residence.
In the case of foreclosure, additional requirements and restrictions will apply after five years and up to seven years as well, which include making a minimum 10% down-payment, having a credit score of at least 680, and having limited cash-out refinance options. Also, the purchase of second homes or investment properties is not permitted.
A shorter time limit (three years) does apply to both foreclosures and multiple bankruptcy cases if the borrower had what Fannie Mae considers to be “extenuating circumstances” that led to the foreclosure. Of course, the borrower must provide evidence and documentation that the action resulted, from, in their words, “…nonrecurring events…beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.”
Deed-in-lieu Foreclosure – A person must wait four years before purchasing another home. However, if they suffered what Fannie Mae considers extenuating circumstances, then they too can qualify to have their waiting period shortened (in this case to two years).
Bankruptcies – With the exception of Chapter 13 judgment, a four-year wait from the discharge or dismissal date is required before purchasing a home. Unless there is extenuating circumstances apply. In that case, the wait is cut in half to two years as well.
Short Sale – Two years is the standard waiting period for short sales (whether the mortgage was delinquent or not), as well as Chapter 13 bankruptcy judgments. There are no exceptions permitted for extenuating circumstances. After the wait period you will be able to purchase primary residence and investment or second homes.
Requirements to re-establish credit
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
- Including a minimum of four credit references (one of which must be housing-related and cover the period following the foreclosure, bankruptcy or short sale)
- Include 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.
This is a general overview of Fannie Mae’s new credit guidelines; for more detailed information, please visit their web site.
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