Are you worried about your credit after a foreclosure, short sale or bankruptcy? Specifically, do you want to know when you reasonably expect to buy another home? If this is concern for you, here is an overview of Fannie Mae credit guidelines.
Foreclosure Sale- A borrower will be eligible to obtain credit to purchase another principal residence 7 years from the date of the foreclosure sale. However, if a borrower has “extenuating circumstances” they may be eligible for a loan in 3 years. Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that resulted in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations such as illness, divorce, job loss or reduction of income.
Short Sale- A borrower will be eligible to obtain credit to purchase another principal residence 2 years from the date the short sale is completed, but the borrower is limited to a maximum loan to value ratio of 80%. If the borrower has “extenuating circumstances” as set forth above, the maximum loan to value ratio could be 90%. If the loan(s) are current at the time of the sale, it may be possible to qualify even sooner depending on your circumstances. Short sales can be reported various ways by the lenders, but the most common is a “paid in full” with a “settled for less than owed” code from the reporting agencies. If the loan(s) are delinquent, the loans will also indicate delinquent status i.e. 60, 90, 120 or 150 past due.
Bankruptcy- A borrower will be eligible to obtain credit to purchase another principal residence 4 years from the discharge or dismissal date of a Chapter 7. In a Chapter 13 case, it is 2 years from the discharge date or 4 years from the dismissal date. In a Chapter 13 filing, the borrower is given credit for repaying some or all of their debt. On the other hand, if the Chapter 13 is dismissed, the time period will be 4 years. There is an “extenuating circumstances” allowance in Chapter 7 cases, but not in Chapter 13.
Re-Establishing Credit- It is very important that borrowers re-establish credit after a bankruptcy case and improve credit after a short sale or foreclosure. To have credit, you need to use credit. Probably the most important thing to do besides allowing time to pass is to open a few new credit accounts, use the credit and make payments in a timely manner. To the extent there is a mix of old and new credit accounts, that is preferred. Credit histories that include older, established accounts generally represent lower credit risk. However, an older, established credit history that has many new accounts may indicate that the borrower is overextended. Also to this point, we do not recommend any borrowers to use more than ½ of any credit available on an account.
In conclusion, the above is an overview of Fannie Mae’s credit guidelines for credit after a Foreclosure, Short Sale and Bankruptcy. However, there are lenders who do not sell their loans to Fannie Mae or other governmental agencies. Therefore, if you have a foreclosure, short sale or bankruptcy, it may be possible to obtain a home loan prior to the time frames set forth above depending on your income, down payment and other extenuating circumstances. Also, it should be noted that Fannie Mae is having problems of its own. Therefore, it is important to keep asking if there have been any changes to the guidelines. Foreclosures, Short Sales and Bankruptcy are very serious matters. You are in the deep end of the pool. Before attempting to proceed with a short sale, foreclosure or bankruptcy, I urge you to seek legal counsel about the options available to you. I see people every day for a FREE 30 minute consultation in Walnut Creek, Antioch and Brentwood.
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