Waiting Periods for Prior Short Sales

For Conventional Loans, the guidelines are changing August 16th for Short Sale waiting periods. Currently the guidelines require a 7 year waiting period if putting less than 10% down, 4 years if putting 10% down, and 2 years if putting 20% down. They are changing to the following:

Changes to Seasoning Requirements for Deed-in-lieu of Foreclosure and Preforeclosure Sales: The waiting period requirements for borrowers who have had a previous deed-in-lieu of foreclosure or preforeclosure sale will be updated to require a four-year waiting period; though a two-year waiting period will be permitted if the event was due to extenuating circumstances** and the loan complies with all requirements specific to a deed-in-lieu of foreclosure or a preforeclosure sale due to extenuating circumstances**, as defined by Fannie Mae (see explanation below).

**Extenuating Circumstances: Extenuating circumstances are 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.

When a borrower claims that derogatory information is the result of extenuating circumstances, we will ask that the borrower provide a detailed letter explaining the events that occurred along with any supporting documentation available to 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’s underwriter is responsible for determining that the borrower had no reasonable options other than to default on their financial obligations in order to allow for the lesser seasoning requirements based on the borrower’s explanation and supporting documentation.

In order to navigate through this complicated process, you’ll need a trusted lender, and I have been in the trenches with several that can help you. Contact me at (214) 609-7123, or jtrump@kw.com

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