Fannie Mae changed their short sale rules for conventional financing on August 16th. Until recently, buyers with a short sale and a 20% down payment were allowed to repurchase a home with conventional financing after only 2 years, but now Fannie Mae increased this to 4 years regardless of the size of the down payment.
Why Did Fannie Mae Make These Changes?
It is interesting that Fannie Mae just announced this new short sale rule last week, especially now that the housing market is continuing to heal and grow. I would think a better idea would be for Fannie Mae to reduce their current conventional foreclosure timelines, which require a buyer to wait 7 before they can get a loan. Wouldn’t reducing this to say 5 years help many more buyers get back into the housing market?
There has been a lot of chatter in the industry recently that conventional rules are still too strict for buyers, and this new announcement certainly adds to that argument.
Current Timelines When a Buyer can Repurchase After a Short Sale, Foreclosure or BK
Buyers today essentially have 3 options when it comes to obtaining financing. Did you know more than 9 out of 10 mortgages are either funded by Fannie Mae/Freddie Mac, the FHA or VA!
So if a buyer is looking to purchase and needs financing, it is more than likely they will be using one of these 3 financing options. So here are the timelines buyers must know when looking to repurchase a home after either a short sale, foreclosure or bankruptcy.
1. When Can I Repurchase Again After a Foreclosure?
Here are the time lines for when a buyer can repurchase again after a Foreclosure and they are trying to obtain either Conventional, FHA or VA financing.
Conventional. It is 7 years before a buyer can repurchase again using FHA financing.
FHA. It is 3 years before a buyer can repurchase again using FHA financing. Or, see below for how a FHA buyer can qualify again after just 1 year if they experienced an economic event.
VA. It is only 2 years before a buyer can repurchase again using VA financing.
2. When Can I Repurchase Again After a Short sale?
Here are the time lines for when a buyer can repurchase again after a Short Sale and they are trying to obtain either Conventional, FHA or VA financing.
FHA. It is 3 years before a buyer can repurchase again using FHA financing.
*FHA TIP: The FHA has a loophole that not many people know about, if the FHA buyer did not have any late payments before their short sale, they are allowed to automatically qualify again for FHA financing.
New FHA Short Sale Rule for 2014. The FHA announced in late 2013 they have reduced the time line that buyers must wait after a bankruptcy, foreclosure or short sale before qualifying for an FHA-backed mortgage, if a buyer experienced an “economic event” whereby their household income fell by 20% or more for a period of at least six months.
The period had previously been two years following a bankruptcy, and three years following a foreclosure or short sale. The agency has now reduced the waiting period to ONE YEAR.
For additional information on how to qualify under this new rule, I wrote an article recently on this subject for the San Diego Union Tribune newspaper, see HERE.
VA. It is only 2 years before a buyer can repurchase again using VA financing.
Conventional. As of August 16th, it is 4 years before a buyer can repurchase again using Conventional financing. So no matter what size the down payment is, either 40%, 20% or 5% down, a buyer has to wait 4 years now after a short sale before they can get conventional financing.
3. When Can I Repurchase Again After Bankruptcy?
Here are the time lines for when a buyer can purchase again after a Bankruptcy and they are trying to obtain either Conventional, FHA or VA financing.
Conventional. For a chapter 7 Bankruptcy it is 4 years and 2 years for a chapter 13 bankruptcy, before a buyer can repurchase again using Conventional financing.
FHA. For a chapter 7 Bankruptcy it is 2 years and 1 year for a chapter 13, before a buyer can repurchase again using FHA financing. Or, see above for how a buyer can qualify again after just 1 year if they experienced an economic event.
VA. For a chapter 7 Bankruptcy it is 2 years, and 1 year for a chapter 13 bankruptcy, before a buyer can repurchase again using VA financing.
Helping Buyers Rebuild Their Credit
It is also very important that buyers have started to re-establish their credit again since their hardship. For example, even though the required timeline of say 2 or 3 years may have passed, it is also important that buyers have the required credit scores to qualify again for financing. For example, the FHA and VA only require a 580 credit score to repurchase a home again.
The first step is for a buyer to get a copy of their credit report to verify if their financial hardship or discharge is reporting correctly and to also see what their scores are.
Then the next step is for buyers to start rebuilding credit scores. You can check out my “Credit Education and Improvement” section on my website (see HERE ), which is devoted to helping buyers and consumers understand how credit works and how to improve their scores, so they are able to score the best rates and financing terms.
Tips for Buyers Looking to Purchase Again
There are many buyers who suffered a financial hardship in the past who are already back in the market again to purchase a home. As the VA only requires 2 years from a short sale or a foreclosure, and the FHA only 1 year in some cases, there are a lot more buyers who are eligible to repurchase again but probably just don’t know they can.
A lot of buyers I talk to who suffered a financial hardship in the past, are genuinely surprised when they realize that the FHA or VA for example allows them to purchase again after just 2-3 years!
Tip for real estate agents, a good idea is to check the dates with any clients, friends or family you helped short sale in the past, or anyone who had a foreclosure, and verify how much time has elapsed since their hardship, so now you can let them know when they can repurchase again using these time lines above.
Make sure your buyers know too how important it is that they rebuild their credit, and that they should contact you if they need credit tips on how to rebuild their credit.
I also wrote a piece for the San Diego Union Tribune recently discussing these topics above, which explain the “Guidelines for repurchasing a home after a Financial Hardship'” you can check it out HERE.
If you have any questions about any of these repurchase time lines above, or you would like to get approved for financing, please do not hesitate to contact me directly at 858-442-2686.
