There are many loan options available to borrowers who have experienced short sale, deed-in-lieu of foreclosure, foreclosure or bankruptcy. Below is a summary of the current waiting periods.
* Multiple loan options are available. Specific eligibility criteria may apply depending on product chosen
**Property surrendered in a bankruptcy, is continued as a deed-in-lieu
Definitions Used in this Article:
Foreclosure- Property is repossessed when the borrower consistently fails to satisfy the loan obligations as agreed.
Short Sale- Lender agrees to accept payoff of less than amount owed in the mortgage once the property is sold.
Deed-in-Lieu of Foreclosure- Failing to satisfy the loan obligation, the borrower comes to an agreement with the lender to assign the mortgage title to the lender and avoid foreclosure proceedings.
Bankruptcy Chapter 7- Assets are liquidated and used to pay debts. Remaining bankruptcy debts are discharged.
Bankruptcy Chapter 13- Debts are paid back on a scheduled payment plan agreed upon and confirmed by the court.
Extenuating Circumstances- There are non-recurring events that are beyond the borrower’s control, that result in sudden, significant and prolonged reduction in income or catastrophic increase in financial obligations. Example of extenuating circumstances might include the serious illness or death of the primary wage earner. Divorce or the inability to sell the home because of a job transfer or relocation, does not qualify as an extenuating circumstance.
Fannie Mae has recently announced the waiting period requirements for borrowers who have has a previous deed-in-lieu of foreclosure or pre-foreclosure sale are being updated to now require a four-year waiting period; through a two-year waiting period will be permitted if the event was due to extenuating circumstances. The loan-to-value restrictions previously tied to different waiting period time-frames are also being removed.
This is good news for those conventional mortgage loan borrowers who do not have the 20% down payment and only have the 10% down payment on a home purchase. You no longer need a 10% down payment to qualify for a conventional mortgage load after the 4 year waiting period requirement. Fannie Mae will allow a home buyer to only put a 5% down payment on a home purchase to qualify for a conventional mortgage load 4 years after a short sale or deed in lieu of foreclosure.
Short Sale/Deed in Lieu of Foreclosure
(Changes for applications taken on August 16, 2014 or later)
Waiting Periods Under the Old Guideline (On or before 8/15/2014)
Waiting Periods Under the New Guideline (On or after 8/16/2014)
In July 2011, foreclosures and short sales accounted for 45.4% of home sales in the Twin Cities. In July 2013, these same market segments made up only 26% of home sales. As far as new listings, in July 2011, distressed properties made up 41.2% of the market, but in July 2013, only 17.9%.
Traditional sellers are coming back into the market. All new listings were up 24.6%, but the traditional homes on the market were up 55.7%, the highest increase in almost ten years. Inventory is still low, down about 13% from July 2012 which is making this a seller’s market. The average days on market time is now 72 days and sellers are receiving an average of 97.5% of asking price which is the highest ratio in about seven years.
Double click graph to enlarge.
Did you know that one in ten home buyers this year have been through a short sale or foreclosure? This number is more than double the number of the same type of buyers in 2012. If people keep their credit in tip top shape, pay bills on time, have a good employment record, and save money for a down payment it is possible to get certain types of mortgages just two to three years after a foreclosure or short sale. The length of time can also depend on the circumstances of the foreclosure or short sale, such as an illness, layoff or death. Divorce is not one of those circumstances that helps. With around 150,000 homes in Minnesota being sold as foreclosures or short sales from 2005 to 2012, that makes for a lot of former homeowners that could get back into the housing market as buyers! If you have been through a short sale or foreclosure and would like to buy a home, contact your mortgage banker to see what your options are.