Fannie Mae reduced the waiting period for borrowers who foreclosed after discharging the mortgage debt through bankruptcy to just 4 years! Details can be read in Fannie Mae’s Selling Guide SEL-2014-10.
Previously, homeowners who included a mortgage in bankruptcy were forced to comply with the foreclosure and/or deed-in-lieu of foreclosure waiting period of 7 years. Read about updated guidelines to buy after foreclosure here.
Foreclosure after Mortgage included in BK = 7 Yearsnow just 4 years!
How Will This Benefit You?
Borrowers who included their mortgage debt in bankruptcy or did a deed-in-lieu of foreclosure (DIL) no longer have to wait 7 years to qualify and buy again when using Conventional financing.
The biggest benefit will be in the amount of money saved by having lower monthly payments when no longer having to use costly FHA financing to buy again after including the mortgage debt in bankruptcy.
FHA financing charges borrowers a 1.75% up front mortgage insurance premium (UFMIP) in addition to a ridiculous 1.35% mortgage insurance premium each month!
Conventional financing does not charge an up front mortgage insurance premium like FHA. On a $300,000 purchase, the lower mortgage insurance premium (or lack there of) will save you $5,066!
Conventional financing also has much lower private monthly mortgage insurance premiums (PMI) than FHA. That too will likely save a borrower $150-$350/month in lower PMI premium payments depending on the borrowers credit score and down payment amount.
Frequently Asked Questions:
Q. What if my lender did not transfer title or ownership after discharging my mortgage debt soon after the bankruptcy?
Fannie Mae Conventional financing will now go by the date your mortgage debt was discharged…not by the date the bank processed the transfer of title or property ownership. This transfer of title ownership is technically referred to as the foreclosure process.
Q. What if I included my mortgage in bankruptcy, lived in it for a short period, and then short sold the home?
Fannie Mae’s doesn’t specifically clarify this scenario but they told us your 4 year waiting period would begin from the date of the BK discharge, not the date of the short sale.
Q. Should I wait until my 4 year waiting period is up or use FHA financing now to buy?
This is a no-brainer……wait the 4 years. But lets discuss what you need to do to rebuild your credit score to where you can use Conventional financing.
The plan to bite the bullet and use a costly FHA loan to purchase and then refinance into a Conventional loan in the future may take longer than you think with homes not appreciating like they have in the past.
Besides, chances are that when you included your mortgage in bankruptcy, your lender did not transfer title (foreclose) soon after the discharge date and because FHA still goes by the title transfer/foreclosure date to begin the waiting period clock….you will have to wait nearly 4 years anyways.
And who wants to incur the cost of another appraisal and refinance while starting the whole amortization process over again?
Extenuating Circumstances Can Help You Buy Sooner than 4 Years!
Fannie Mae allows home buyers to qualify in just 2 years if they meet the extenuating circumstance provision. This means if you had a foreclosure, even if the mortgage debt wasn’t discharged in a bankruptcy, you may be eligible to buy in as little s two years.
Fannie Mae’s definition of an extenuating circumstance is a non-recurring event that was beyond an applicants control that resulted in a sudden, significant, and prolonged reduction in income or extreme increase in financial obligations. Events that are unpredictable, temporary in nature, out of the borrowers control, and unlikely to happen again.
Examples of extenuating circumstances can include job loss, layoff, permanent disability or the death of a wage earner.
If you can document your late payments happened after your circumstance, lets discuss how to get you approved.
Short Sale Waiting Period Reduced Too!
Borrower who short sold their home were also subject to waiting 7 years but can now qualify for Conventional financing in just 4 years with as little as 3% down payment.
The previous waiting periods to buy after short sale were tiered based on size of a down payment but that has been eliminated. Details can be read here.
If you would like to discuss your eligibility, how to rebuild credit, or find out how much you qualify for, contact me or call direct (951) 215-6119.