Submitted by New Jersey Bankruptcy Attorney, Lee M. Perlman.
Mandatory Waiting Period Reduced To 2 Years
It’s getting easier to get approved for a mortgage.
Following in the FHA’s footsteps, Fannie Mae has reduced the mandatory waiting period for a mortgage after bankruptcy, short sale, or pre-foreclosure. Borrowers no longer need to wait 4 years before re-applying to get a mortgage.
Borrowers can now re-apply for a loan just two years after a bankruptcy, short sale, or pre-foreclosure. This is one year longer than the FHA’s minimum waiting period via its FHA Back to Work program, and a major improvement for conforming mortgage borrowers nationwide.
Mortgage guidelines are loosening across all loans and Fannie Mae is now the most recent government group to help borrowers who have a history of poor credit because of bankruptcy, short sale, and pre-foreclosure.
New Fannie Mae Rules For Bankruptcy, Pre-Foreclosure, & Short Sales
Recently, Fannie Mae changed its mortgage rules for borrowers with a recent bankruptcy, pre-foreclosure, or short sale. The group has reduced its mandatory waiting period after such an event from four years to 2 years.
The change nearly mirrors a similar update from the FHA as part of that group’s Back to Work program. Via FHA Back to Work, certain mortgage borrowers are eligible to apply for a loan just 12 months after a significant derogatory event.
“Significant derogatory event” is defined as any one of the following which may appear on a person’s mortgage credit report:
- A pre-foreclosure
- A short sale
- A deed-in-lieu of foreclosure
- A bankruptcy
- A mortgage loan charge-off
A significant derogatory events will typically affect a person’s credit score by 100 points or more. For this reason, before selecting a loan program, it’s important to compare conforming mortgage rates via Fannie Mae against FHA mortgage rates via the Federal Housing Administration.
FHA mortgage rates are typically lower than comparable conforming rates; and don’t penalize for credit scores below 740. However, FHA mortgage insurance premiums can be costly on an upfront and ongoing basis.
Any mortgage lender can help you decide which loan program best suits your needs. Explore all available options — you never know how much you might save.
New Fannie Mae Guidelines For Derogatory Events
Fannie Mae has reduced its mandatory waiting period after a pre-foreclosure, short sale, or bankruptcy.
Prior to the change, which is effective immediately for all loan applications, Fannie Mae required borrowers to wait four years after a significant derogatory credit event before re-applying for a home loan.
That mandatory waiting period is now just 2 years.
The table below compares Fannie Mae prior policy against its current one; and against the FHA Back to Work program which may be more suitable for borrowers with less available downpayment.
FHA loans permit home down payments of just 3.5 percent. Fannie Mae loans typically require 5 percent or more.
| Prior Fannie Mae Minimum | New Fannie Mae Minimum | Current FHA Minimum | |
| Short Sale | 4 Years | 2 Years | 1 Year |
| Bankruptcy | 4 Years | 2 Years | 1 Year |
| Pre-Foreclosure | 4 Years | 2 Years | 1 Year |
For a Fannie Mae loan, “extenuating circumstances” are situations which (1) occur one-time only; (2) are beyond the borrower’s control; and, (3) result in a sudden, significant, and prolonged reduction in income.
The label of “extenuating circumstances” may also be applied to situations in which a borrower is subject to a catastrophic increase in financial obligations.
Examples of extenuating circumstances may include divorce, illness, sudden loss of household income, and/or job loss.
Mortgage applicants wishing to apply for a loan using Fannie Mae’s Extenuating Circumstances program should be prepared to provide documentation in support of the claim. Valid documentation may include a copy of a divorce decree; medical bills; and, notice of job loss or job severance papers.
Borrowers should also be prepared to write a brief letter describing the hardship and how it directly led to the bankruptcy, pre-foreclosure, or short sale. The letter should make it clear that default was the borrower’s only reasonable course of action, given the circumstances.
Borrowers should also make it clear that the derogatory event was a one-time event, and that financial obligations have been paid on-time in the months since.
Fannie Mae Mortgage Rates Remain Near 2015 Lows
Along with softening mortgage guidelines, today’s mortgage loans are easier for which to qualify. This is because low mortgage rates lower a homeowner’s expected monthly payment, which reduces debt-to-income ratios.
The conventional 30-year fixed rate mortgage rate has averaged less than 4 percent every month since last November and many mortgage applicants report receiving rate quotes in mid-3 percents.
When mortgage rates are low, purchasing power is extended and refinance opportunities increase.
As compared to last January, 30-year mortgage rates are lower by approximately 87.5 basis points (0.875%) which has increased the maximum purchase price for today’s buyers by close to $11,000 for every $100,000 borrowed.
This 11-percent boost can mean the difference between buying a 2-bedroom home or a 3-bedroom one; a home with 3 bathrooms or 4 bathrooms; or, a home with an upgraded kitchen, for example.
Extra purchasing power can also mean the difference between buying in a top-rated school district or a second-tier one.
For existing homeowners, when mortgage rates drop, there’s an opportunity to lower your monthly mortgage payment via a home loan refinance.
Via a refinance, your home’s existing mortgage is replaced with a new one with new, different terms. For many people, these new terms include a reduction in their mortgage rate which, in turn, results in a lower monthly payment.
Refinances are also an opportunity to take “cash out” from a home for home repairs or other needs; or to reduce a loan’s length from 30 years to something shorter.
Get A Live Rate Quote Now
Fannie Mae is loosening its mortgage guidelines and making it easier for mortgage applicants to get mortgage-approved. Even better, while that’s happening, mortgage rates are trolling near all-time lows. It’s an excellent time to compare today’s mortgage rates.
Rate quotes are available online at no cost, with no social security number required to get started, and with no obligation to proceed.
Originally published here by the themortgagereports.com