I hope everyone out there enjoyed the beautiful Summer that, for me, came and went far too quickly! As we move into the final quarter of 2014, I thought I’d take this opportunity to touch on a specific mortgage guideline change that took place on the August 15th:
As of 8/15, Fannie Mae requires a seasoning period of 4 years after a short sale before a borrower can purchase a new property. Before this guideline change, Fannie Mae allowed a buyer to purchase 2 years after a short sale, provided the down payment was at least 20% of the sales price. This being said, the amount of potential buyers has shrunk significantly and although this news may seem negative, there are still options available for buyers who are affected by this recent change:
1. If a buyer is looking for a Conventional loan, Freddie Mac does not (yet) have this guideline set in stone. They could endorse a loan for a buyer who does not have the 4 years’ seasoning, but the rest of the buyer’s profile MUST be strong (high credit scores, low debt-to-income ratios, LARGE down payment, etc.).
2. FHA insured loans can be done as soon as 1 year after a short sale. FHA has recently initiated their “Back to Work” program. If the circumstances surrounding the short sale were extenuating in that the buyer had to sell short as a result of loss of work due to illness, injury, etc., they will endorse a loan for a buyer after 1 year as opposed to the typical 3 year requirement. There is a laundry list of stipulations that come with this program, so please call for further details.
3. VA purchase loans do not (technically) require any seasoning. However, there are a couple stipulations one must keep in mind:
-If the Veteran has a late payment on a mortgage in the 12 months prior to the
short sale, there is a 1 year seasoning period.
– If the mortgage on the property that was sold short was a VA loan, the Veteran must
restore his full VA entitlement (call for details).
All this being said, I won’t simply put a hard stop on a loan application simply because a borrower has a short sale on their credit in the last 4 years. I will perform a comprehensive analysis of the profile as a whole and exhaust EVERY single option available. If purchasing is not an immediate option, I will advise the borrower as to exactly when a mortgage will be available to them AND make sure they know what they need to do to set them up for success in the future.
Until next time, Rachael and I are ALWAYS available and happy to help…