Waiting Periods and Extenuating Circumstances After a Short Sale, Foreclosure, Bankruptcy

Waiting Periods and Extenuating 
Circumstances After a Short Sale, 
Foreclosure, Bankruptcy 

I wrote a while back about the Fannie Mae announcement regarding the extension of the waiting period for Buyers hoping to become Homeowners once again after having experienced a Short Sales (Pre-Foreclosures).

The waiting period is extended to 4 years ... regardless of Loan-to-Value considerations (or Down Payment percentages).

Naturally, there was a wide range of reaction to Fannie Mae's announcement. There were also many questions asked in regards to the change and to my post. I'm addressing some those questions here.

I'm also featuring info regarding those exceptions seen as viable hardships/options for Short Sales ... and the financing options that remain available for new potential Home Buyers having faced this situation.

Quite a few questions were raised regarding FHA and VA waiting periods. Both FHA and VA have shorter waiting periods.

As a general rule:

  • VA allows financing two (2) years after a Short Sale 
  • FHA requires a three (3) year waiting period 

Exceptions to the rules include:

  • Shorter waiting periods for VA and FHA loans are possible if the Mortgage Payment History is perfect (NO late payments. But this rarely occurs.
  • Conventional Loans can be achieved two (2) years out AFTER an Extenuating Circumstance. 

An Extenuating Circumstance is defined by Fannie Mae as:

  • B3-5.3-08: Extenuating Circumstances for Derogatory Credit (04/01/2009) 

Extenuating circumstances are defined as:  
  • Nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. 

If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim.

Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event such as:

  • A copy of a Divorce Decree 
  • Medical reports or bills 
  • Notice of job layoff, job severance papers, etc. 

And documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event, such as: 

  • A copy of Insurance Papers or Claim Settlements
  • Property Listing Agreements 
  • Lease Agreements 
  • Tax Returns covering the periods prior to, during, and after a Loss of Employment 
  • Etc. ... 

The lender must obtain a letter from the borrower explaining the relevance of the documentation. The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations.

FHA also has a 1-Year "Back to Work" Program ...
(See my post "Good News for Many Hopeful 2014 Home Buyers: FHA's "Back to Work - Extenuating
Circumstances" Program").

The FHA program allows financing after a significant economic event. Think instances such as job loss, company shut-down, significant pay cuts.

I obviously can't address all the many and different possibilities and individual scenarios that customers might face within this post. But I do want to stress this important fact: 

Each situation is unique. Each situation is subject to review. 

And that's good news!  Why?

Because that means there's no blanket, ready-made decision regarding a customer's individual financial situation. Each potential Buyer has the opportunity to fully explain their personal "Extenuating Circumstances" and prove that moving forward, they'll be a responsible Mortgage holder that meets their monthly Mortgage Payment obligations.

Waiting Periods and Extenuating Circumstances After a Short Sale, Foreclosure, Bankruptcy ...

Bottomline:  Ever-changing guidelines make it vitally important that Buyers/Borrowers find and work with an experienced, knowledgeable, and resourceful Loan Officer when considering a Mortgage.

This is especially true when they've previously faced the challenges of a Short Sale, Foreclosure, Deed-in-Lieu of, Bankruptcy, or any other significant credit challenge.

In the Chicagoland area, that Mortgage Originator is Gene Mundt. Experience counts greatly at this time ...

* Hoping to become a Homeowner again after experiencing a Short Sale, Foreclosure, Deed-in-Lieu of, Bankruptcy, or other financial/credit upheaval?

Contact Me today! I'll put my 40+ years of Mortgage experience hard to work on your behalf.
I'm easily found at:

Gene Mundt

Mortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI Licensed

American Portfolio Mortgage Corp.
NMLS #175656

Direct: 815.524.2280
Cell/Text: 708.921.6331
eFax: 815.524.2281

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Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, 
VA, Jumbo, USDA, and Portfolio Loans in Chicago and 
the greater Chicagoland region, including: 
The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL & WI.

Referrals are Welcomed and Appreciated!

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