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Impact of Short Sales and Foreclosures on getting a new loan…

October 12, 2011
With all the foreclosures and short sales in the past few years, many of us in the real estate business are coming across clients with this history. I thought this information might help you and you clients if the occasion arises.

There are many variables involved when trying to figure out when someone will be able to purchase a home after a foreclosure or a short sale; however, the general guidelines that FHA, Fannie Mae and Freddie Mac follow when considering a loan after a short sale or foreclosure are as follows.

Short Sale with FHA loan
• Can purchase right away with no mortgage default/late payments
• 3 year wait if in default or late payments at the closing
• Reduced wait if the borrower has re-established good credit and can show more qualifying circumstances *

Short Sale with Fannie Mae Loan
• 2 year wait if the borrower puts 20 % down
• 4 year wait if the borrower puts between 10% to 20% down
• 7 year wait if the borrower puts less than 10% down
• 2 year wait if the borrower can show extenuating circumstances and puts more than 10% down *

Short Sale with Freddie Mac Loan
• 4 year wait before being able to get a loan
• 2 year wait if the borrower can show extenuating circumstances *

Foreclosure with an FHA Loan
• 3 year wait before being able to get a loan
• Reduced wait if the borrower can show extenuating circumstances and re- establishes good credit *

Foreclosure with a Fannie Mae Loan
• 7 year wait from the completed foreclosure sale date
• 3 year wait if the borrower can show extenuating circumstances. Additional underwriting requirements apply for 4 years after a 3 year waiting period.
• 7 year wait for a 2nd home, cash out re-financing, or an investment property

Foreclosure with a Freddie Mac Loan
• 5 year wait from the completed foreclosure sale date
• 3 year wait if the borrower can show extenuating circumstances *

*Qualifying/Extenuating circumstances are not applicable in most situations

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