It is becoming easier to get mortgage approval.
Following a similar shift to FHA home equity loans, mortgage sponsor Fannie Mae has reduced the waiting period required to file for a mortgage application after bankruptcy, a short sale, or before foreclosure.
Borrowers no longer have to wait 4 years to apply for a mortgage again.
Borrowers can now reapply for a loan just two years after bankruptcy, a short sale, or before foreclosure. This corresponds to the FHA’s indulgent minimum and a significant improvement for conventional mortgage borrowers across the country.
Mortgage guidelines relaxed on all loans.
Fannie Mae is the latest publisher of mortgage guidelines to help borrowers with a poor credit history due to bankruptcy, short selling, and foreclosure.
New Fannie Mae Rules on Bankruptcies, Foreclosures, and Short Sales
Recently, Fannie Mae changed its mortgage rules for borrowers with a recent bankruptcy, foreclosure, or short sale. The group reduced the mandatory waiting period after this event from four years to two years.
Freddie Mac followed suit, reducing his waiting period to 24 months. Like Fannie Mae, it allows borrowers to apply when two years have passed since a significant derogatory event.
A “significant adverse event” is defined as any of the following that may appear on an individual’s mortgage report:
However, just because you qualify for a standard mortgage through Fannie Mae does not necessarily mean that it is the best loan for you. Major mitigating events can affect a person’s credit score by 100 points or more, and low mortgage rates for low-rated borrowers generally vary.
If you have had a significant credit event, it is important to compare normal mortgage rate quotes with FHA mortgage rates to ensure you are “getting the best deal.” FHA mortgage rates are generally lower than comparable complaint rates, especially for credit scores below 680.
However, FHA mortgage insurance premiums can increase the total cost of an inter-FHA loan.
Any mortgage lender can help you decide which loan program is best for you. Explore all the options available – you never know how much you could save.
New Fannie Mae Guidelines for Mitigating Events
Fannie Mae has reduced its mandatory waiting period after a previous closing, short sale, or bankruptcy.
Before the change, Fannie Mae required borrowers to wait four years after a significant credit depreciation event before reapplying for a home equity loan.
That mandatory waiting period is now just 2 years.
The following table compares Fannie Mae’s current policy to its current policy; and against the FHA’s Back to Work program, which may be more suitable for borrowers with less initial availability.
FHA loans allow home payments as low as 3.5%. Fannie Mae loans generally require 5% or more (although there are 3% repayment programs).
|Prior Fannie Mae Minimum||New Fannie Mae Minimum||Current FHA Minimum|
|Short sale||4 Years||2 Years||2 Years|
|Bankruptcy||4 Years||2 Years||2 Years|
|Pre-Foreclosure||4 Years||2 Years||2 Years|
For a Fannie Mae loan, “extenuating circumstances” are situations that (1) only occur once; (2) they are beyond the control of the borrower; and, (3) result in a sudden, significant and sustained decline in revenue.
The label “mitigating circumstances” can also apply to situations where a borrower is subject to a catastrophic increase in financial obligations.
Examples of extenuating circumstances may include divorce, illness, sudden loss of family income, and/or loss of employment.
Mortgage applicants wishing to apply for a loan through the Fannie Mae Mitigation Program should be prepared to provide supporting documentation. Valid documentation may include a copy of a divorce decree; medical expenses; and, notification of documents for job loss or dismissal.
Borrowers should also be prepared to write a short letter describing the difficulties and how they led directly to bankruptcy, foreclosure, or short sale. The letter should make it clear that insolvency was the borrower’s only reasonable course of action under the circumstances.
Borrowers must also clarify that the derogatory event was a one-off and that financial obligations were paid on time in subsequent months.
Buyers gain additional purchasing power
In addition to easing mortgage guidelines, current mortgage rates are making it easier to obtain mortgage eligibility.
This is because low mortgage rates lower a mortgage applicant’s expected monthly payment, which, in turn, lowers their debt-to-income ratio.
When mortgage rates are low, purchasing power stretches.
The added purchasing power can make the difference between buying a 2-bedroom house and a 3-bedroom house; between buying a house with large closets versus small closets; and, between buying a house better than an “old style” one.
Added purchasing power can also make the difference between shopping in a higher-level school district and a second-level school district.
And now, with Fannie Mae’s more flexible mortgage guidelines, more mortgage applicants can apply for home loan financing.
What are the mortgage rates today?
Mortgage lenders have relaxed mortgage guidelines, which makes it easier to get a mortgage. With low mortgage rates, this is a good time to compare current rates.
Get current mortgage rates now. Your Social Security number is not required to get started, and all quotes have access to real-time mortgage credit scores.
Significant adverse credit events significantly increase the probability of future defaults and reflect a much higher level of default risk. Examples of major adverse credit events include bankruptcies, foreclosures, foreclosures, pre-foreclosure sales, short sales, and foreclosure.
The lender must determine the purpose and significance of the depreciation information, verify that sufficient time has passed since the date of the last depreciation information, and confirm that the borrower has re-established acceptable credit history. The lender must make the final decision on the admissibility of a borrower’s credit history when there is significant depreciated credit information.
Extenuating circumstances exceptions
A two-year waiting period is allowed if extenuating circumstances can be documented.
Note: Not all creditors or credit reporting agencies can accurately and consistently report representative deeds and anticipated sales in the same way. See Identify significant adverse credit events on your previous credit report for additional information.
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