SINCE AUGUST 2014, FANNIE MAE HAS MADE MAJOR CHANGES IN THEIR GUIDELINES REGARDING BUYING A HOME AFTER A FINANCIAL HARDSHIP Buying a Home After Bankruptcy: The waiting period for buying after a Bankruptcy begins from the Discharge Date that appears on your court documents. There may be a discharge month and year on your credit report, but the date your lender will use comes directly from the discharge papers. Chapter 7 Bankruptcy – A four-year waiting period is required, measured from the discharge or dismissal date of the bankruptcy action. Chapter 13 Bankruptcy – A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period required for Chapter 13 bankruptcy actions is measured as follows: •two years from the discharge date, or •four years from the dismissal date. The shorter waiting period based on the discharge date recognizes that borrowers have already met a portion of the waiting period within the time needed for the successful completion of a Chapter 13 plan and subsequent discharge. A borrower who was unable to complete the Chapter 13 plan and received a dismissal will be held to a four-year waiting period. Exceptions for Extenuating Circumstances - A two-year waiting period is permitted after a Chapter 13 dismissal, if extenuating circumstances can be documented. There are no exceptions permitted to the two-year waiting period after a Chapter 13 discharge. Extenuating circumstances are rare. They include such things as injury, illness, or death of a close family member, or other extenuating circumstances. Buying a Home After Foreclosure: A seven-year waiting period is required, and is measured from the completion date of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower. Exceptions for Extenuating Circumstances – A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the completion date of the foreclosure action. Additional requirements apply between three and seven years, which include: •Maximum LTV, CLTV, or HCLTV ratios of the lesser of 90% or the maximum LTV, CLTV, or HCLTV ratios for the transaction per the Eligibility Matrix. •The purchase of a principal residence is permitted. •Limited cash-out refinances are permitted for all occupancy types pursuant to the eligibility requirements in effect at that time. Note: The purchase of second homes or investment properties and cash-out refinances (any occupancy type) are not permitted until a seven-year waiting period has elapsed. Buying after Short Sale or Deed in Lieu: These transaction types are completed as alternatives to foreclosure. •A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. These are typically identified on the credit report through Remarks Codes such as “Forfeit deed-in-lieu of foreclosure.” •A pre-foreclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer. •A charge-off of a mortgage account occurs when a creditor has determined that there is little (or no) likelihood that the mortgage debt will be collected. A charge-off is typically reported after an account reaches a certain delinquency status, and is identified on the credit report with a manner of payment (MOP) code of “9.” A four-year waiting period is required from the completion date of the deed-in-lieu of foreclosure, pre-foreclosure sale, or charge-off as reported on the credit report or other documents provided by the borrower. Exceptions for Extenuating Circumstances – A two-year waiting period is permitted if extenuating circumstances can be documented. Mortgage Discharged in Bankruptcy: If mortgage debt was included, and discharged through your bankruptcy, Fannie Mae made changes to it’s guidelines in August of 2014 to allow you to use the bankruptcy discharge waiting period only. If a Foreclosure, Short Sale, or Deed in Lieu of Foreclosure occurred on after the discharge of the Bankruptcy, there is no separate waiting period like you would find if trying to buy using FHA or VA financing. Many lender are telling home buyers that if there is a Short Sale or Deed in Lieu of Foreclosure on a discharged mortgage, that there is a separate waiting period. This is an inaccurate, but understandable misunderstanding by the lender. The Fannie Mae guidelines specifically only address Foreclosure included in a Bankruptcy. Here is the actual guideline: Foreclosure and Bankruptcy on the Same Mortgage: If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied. If the lien was removed by way of Short Sale, or Deed in Lieu of Foreclosure, that the Bankruptcy waiting period still applies. When Can I Apply for a New Loan After Hardship? Last week, Fannie Mae issued clarification about “when” you can apply for a new loan after a hardship. When applying for a new mortgage after a bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure, the timeline is measured from the start date of the hardship, to the date the new loan closes. There was a lot of confusion around this timeline, and previously the thought was that the credit report date needs to be after the required waiting period. This clarification gives us a final answer. Working with a Creative Lender: As a direct lender in over 30 states, we pride ourselves in being on the cutting edge of creative financing solutions. When I say “creative”, I mean that we know our guidelines, and we know how to fight through the hurdles of complicated situations that big bank employees have neither the experience or patience to figure out. If you feel that you may be eligible to buy a home after bankruptcy, foreclosure, short sale or a deed in lieu of foreclosure and you’re not sure where to start, you can ask questions or shoot me an email directly, or give me a call anytime. My phone number goes to my cell phone, and I am available when you have a question. Don’t be afraid to leave a message, I promise I will get back to you in a timely manner.