It is reasonable to assume that a borrower whose home was foreclosed would need to wait for a number of years before he could get another home loan. In fact, the waiting period after a foreclosure ranges from five to seven years when there are no extenuating circumstances. Extenuating circumstances include the death of a loved one, a job transfer, illness in the family, or an accident that has caused a severe injury. The waiting period after a foreclosure when there are extenuating circumstances ranges from three to seven years.
But what about the waiting period after a short sale? Let us first define what a short sale is and how it differs from a foreclosure. A short sale occurs when the lender agrees to let the property be purchased at a discounted price and takes the proceeds as payment for the outstanding loan although it is less than the amount that is due. The difference is considered to be forgiven and the lender issues a Form 1099 indicating this amount.
Meanwhile, Fannie Mae is the biggest mortgage buyer in the US and it has issued revisions to its guidelines on waiting periods depending on the type of foreclosure and whether it was a short sale. For a short sale, the waiting period set by Fannie Mae has been two years but this could be reduced to zero if the borrower’s payments were not late by 60 days or more. However, Fannie Mae often issues updates regarding its guidelines and it should be noted that the above policies became applicable starting August 1, 2008.