Both Fannie Mae and FHA have guidelines now for purchasing a home after having been through a short-sale.  FHA will also allow current home owners to perform a "short-refinance", similar to a short sale but the home owner retains the home. 

Below are the Fannie Mae guidelines for qualifying for a new conventional mortgage after a homeowner has sold a home through short-sale.  Following that is information on FHA mortgages for short-refinances and post-short sale purchases.

FANNIE MAE GUIDELINES

Recently Fannie Mae came out with new guidelines for approving mortgages for applicants who have gone through a "preforeclosure sale" or deed-in-lieu of foreclosure.  "Preforeclosure sale" is Fannie Mae's definition of a short-sale, or any sale for less than the full mortgage balance due prior to a foreclosure.

Preforeclosure Event	Current Waiting Period Requirements	New Waiting Period Requirements (1)
Deed-in-Lieu of Foreclosure	4 years Additional requirements apply after 4 years up to 7 years	 2 years – 80% maximum LTV ratios  4 years – 90% maximum LTV ratios  7 years – LTV ratios per the Eligibility Matrix
Preforeclosure Sale	2 years
Short Sale	No policy currently exists specific to short sale

As you can see with 20% down qualified applicants can apply for a new Fannie Mae loan after two years, with 10% applicants must wait four years and with less than 10% the required wait will be seven years.

If the preforeclosure sale or deed-in-lieu of foreclosure was due to "extenuating circumstances" that can be well documented, such as a job loss, Fannie Mae has shortened the criteria.

Exceptions to Waiting Period for Extenuating Circumstances
Preforeclosure Event	Current Waiting Period Requirements	New Waiting Period Requirements (1)
Deed-in-Lieu of Foreclosure	2 years Additional requirements apply after 2 years up to 7 years	2 years – 90% maximum LTV ratios
Preforeclosure Sale	No exceptions are permitted to the 2-year waiting period
Short Sale	No policy currently exists specific to short sales

The new policy is effective for all loan applications taken on or after July 1, 2010.  Depending on down payment available prospective homebuyers who avoided foreclosure with a short-sale or deed-in-lieu of foreclosure prior to July 1, 2008 appear to be eligible to purchase again using Fannie Mae qualifying provided they have 20% down payment.

Note all applicants with severe derogatory items on their credit reports must re-establish credit according to Fannie Mae guidelines to be eligible.

For more information on the new policy see the full announcement at the Fannie Mae website.

For more information about qualifying or specific scenarios contact me.

FHA GUIDELINES

Per FHA mortgagee letter, FHA will insure a mortgage for borrowers who short-sell their current residence and purchase another one provided all of the following requirements are met:

• All mortgage payments must have been made within the month due for the 12 month period prior to the short sale
• All installment payments must have been made within the month due for the 12 month period prior to the short sale
• The short payoff must serve as payment in full on the existing liens and the existing mortgage servicer may not require repayment of the difference between the mortgage balance and the short payoff
• Borrowers may not obtain a short sale to “take advantage of declining market conditions and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance” (Borrowers who obtain a short sale due to employment relocation that is not within reasonable commuting distance from the property being sold short are eligible for FHA financing, provided all other short sale and purchase requirements are met)
• Borrowers in default on their mortgages at the time of short sale are ineligible for FHA financing for three years from the date of the short sale unless the default was due to significant extenuating circumstances and the borrower had satisfactory credit prior to the extenuating circumstance. To waive the three year waiting period for borrowers who were delinquent at the time of short sale, requires a Total Scorecard “approve” or “accept” response for the new purchase transaction
• FHA will not approve loans for borrowers having both a short sale and previous bankruptcy and/or foreclosure

The keys: All credit payments current through the short-sale, new home must be "inferior" to home being sold (i.e. smaller, significantly lower value than price on short sale, and/or geographically distant from current property).

The question: will a lender approve a short-sale on a borrower who is current on their existing mortgage and has the assets available to provide down payment and closing costs for a new FHA mortgage? With the new loan modification program being pushed by the Obama Administration and Bank of America saying it will reduce principle balances by approximately $3 billion to avoid foreclosures, many lenders may see a short-sale as a cheaper alternative, in which case this may be a productive tool for all involved.

It is a very small needle to thread, and no doubt many will try to force clients or themselves through that small hole. I wanted to make you aware as you may receive offers on your listings from buyers trying this process, or you may have clients who may be eligible.

Before attempting this difficult transaction my advice is to have the buyers fully qualified and approved by FHA underwriter before beginning the process. Also do not try to push the envelope on what is considered an "inferior residence."

If you have any questions, or potential clients who may fit the profile and have questions, please do not hesitate to contact me for an honest evaluation of the process and their ability to qualify.

For more information about qualifying or specific scenarios contact me.