New 2016 Fannie Mae Guidelines On Mortgage After Short Sale

Updated 2016 Fannie Mae Guidelines On Mortgage After Short Sale

2016 Fannie Mae Guidelines On Mortgage After Short Sale requires a four year waiting period after the date of the short sale. A short sale is an alternative to foreclosure and is often offered to homeowners who have mortgage balances which are higher than the market value of their homes. A short sale is highly recommended for homeowners who can no longer afford their mortgage payments and cannot sell their home because of having mortgage loan balances that is higher than the appraised value of their home. A short sale needs to get approved by the homeowners mortgage lender and normally takes some time to get a short sale approved.

How Does The Short Sale Process Work?

The 2008 Real Estate And Mortgage Meltdown has left millions of homeowners with upside mortgages where the mortgage balance of their home loan was higher than the value of their properties. Since the Great Recession of 2008, real estate values have recovered in most parts of the United States, however, there are still homeowners who are underwater: Underwater mortgages is when the homeowners mortgage loan balance is higher than the value of their homes. The only way these homeowners with underwater mortgages can sell their homes and move on is by coming up with the difference of the mortgage loan balance and the property value and most folks cannot come up with the difference. Homeowners who have lost their jobs or businesses due to the Great Recession and can no longer afford their housing payments could not sell their homes and a short sale was an alternative to foreclosure. Many mortgage lenders want to avoid foreclosure and will offer the homeowners who can no longer afford to keep their homes foreclosure alternatives such as deed in lieu of foreclosure or short sale.  A homeowner who is offered a short sale by their mortgage lender sells the home at a price below the mortgage balance amount. In return, the mortgage lender will not go after the deficit and forgive the debt.

The short sale process is like any home selling process. The only exception is that the home seller needs to get permission by the mortgage lender on the selling price of the home. The homeowner gets to choose the realtor of their choice. The mortgage lender needs to approve the listing price of the short sale home. If there is an offer on the short sale home, the mortgage lender needs to approve the price and sign the real estate purchase contract as the seller. Short sale homes take much longer to close than regular homes due to the slowness of the bank.

 2016 Fannie Mae Guidelines On Mortgage After Short Sale: Qualifying For Conventional Loan

Home buyers with a prior short sale can now qualify for a conventional mortgage loan four years after the short sale date which is on the HUD-1 Settlement Statement. A short sale will plummet your credit scores, however, as your short sale on your credit report ages, the short sale will have less and less of an impact on your credit scores and your credit scores will eventually go back up where the short sale will have little to no impact on your credit scores. Qualifying for conventional loan after short sale requires no late payment history after the short sale. Conventional mortgage lenders want to see that the mortgage loan borrower has re-established credit after short sale and timely payments. Minimum credit scores required to qualify for a conventional loan is 620 FICO.  Conventional Loans are very credit score sensitive unlike FHA Loans. The higher your credit scores are on conventional loans, the lower your mortgage rates will be. To get the best available conventional mortgage interest rates, you should have credit scores of 740 FICO or higher. Every 20 FICO point drop from 740 FICO, there will be a pricing adjustment on the conventional mortgage interest rates.

What If You Are Told You Do Not Qualify For Conventional Loan 4 Years After Short Sale?

Just because you have descent credit scores and have met the 4 year waiting period after short sale does not mean that all conventional mortgage lenders will approve you for a conventional mortgage loan. There are many mortgage lenders that have mortgage lender overlays on conventional loans after short sale. Mortgage lender overlays are mortgage lending guidelines that are set by individual mortgage lenders that surpass the minimum conventional mortgage lending guidelines and standards of Fannie Mae and Freddie Mac . Here are the 2016 Fannie Mae guidelines on mortgage after short sale for borrowers needing a conventional loan.

  1. 4 year waiting period after short sale. The waiting period clock starts from the date of the short sale which is reflected on the HUD-1 Closing Statement.
  2. Minimum credit scores of 620 FICO.
  3. Minimum 5% down payment for home purchase. 3% down payment is available by Fannie Mae on a conventional loan purchase but is limited to first time home buyers. 3% down payment on conventional loans on a home purchase is available with Freddie Mac for home buyers who did not have any home ownership in the past 3 years. Otherwise, minimum 5% down payment is required on a conventional home purchase mortgage loan.
  4. Maximum debt to income ratio of 45% DTI.

2016 Fannie Mae Guidelines On Mortgage After Short Sale: Lender Overlays

Many banks and conventional mortgage lenders have mortgage lender overlays. Some banks and mortgage lenders will require a 5 year waiting period or more after short sale to qualify for conventional loan after short sale. Many mortgage lenders will require minimum amount of credit tradelines . Some mortgage lenders may require 3 to 5 credit tradelines that has been seasoned for two years. Other mortgage lender overlays include higher credit scores than the minimum 620 FICO credit scores required by Fannie Mae. Other mortgage lenders will require verification of rent.

If you are looking to qualify for a conventional loan after short sale and need a conventional mortgage lender with no mortgage lender overlays, please contact me at 262-716-8151 or email me at gcho@gustancho.com. We do not have any mortgage lender overlays on conventional loans and as long as you meet the minimum Fannie Mae and/or Freddie Mac mortgage lending guidelines, we can approve and close on your conventional mortgage loan.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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