Category Archives: Real Estate
Have you recently experience a short sale and wondering when you will be able to purchase a home again?
There are different regulations for different loan types. We will provide the requirements for Fannie Mae, FHA and VA loans for a purchase after experiencing a short sale.
Fannie Mae Loan
With Fannie Mae, one can purchase a home in as little as 2 years after a short sale has been recorded if the buyer is putting 20% down on the home.
There is a 4 year waiting period if the buyer is putting 10% down on the home purchase.
Anything less than 10% will require a 7 year waiting period before being able to purchase a home through Fannie Mae.
With an FHA loan there are varying circumstances that affect one’s ability to purchase a home. The following information is provided by Hud.gov
Borrowers are not eligible for a new FHA- insured mortgage if they pursued a short sale agreement on his or her principal residence simply to
- Take advantage of declining market conditions
- Purchase at a reduced price a similar or superior property within a reasonable commuting distance.
Borrowers current at the time of Short Sale
Borrowers are considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage
- All mortgage payments due on the prior mortgage were made within the month due for the 12 month period preceding the short sale, and
- All installment debt payments for the same time period were also made within the month due.
Borrowers in Default at the time of Short Sale
Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA-insured mortgage for 3 years from the date of the pre-foreclosure sale.
There are exceptions to the following requirements; however, they require extenuating circumstances that are beyond the borrowers control. Hud.gov explains exceptions stating:
Exception: A lender may make an exception to this rule for a borrower in default on his/her mortgage at the time of the short sale if the
- Default was due to circumstances beyond the borrower’s control, such as death of primary wage earner or long-term uninsured illness, and
- A review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower’s control that caused the default
These circumstances would need to be discussed with a mortgage lender prior to pursuing a mortgage loan.
The general waiting period for a VA loan after a short sale is 2 years. However, like the other two loan programs, there are different regulations depending on the veteran’s circumstance for a short sale.
According to VALoans.com, a borrower may get approved for a VA loan after short sale, “if the buyer has a qualifying credit score plus a record of dependable payments during the waiting period, sometimes called a “seasoning period” following the short sale.
Anything less than a 2 year waiting period would be determined on the borrowers credit history, circumstance and the lender’s guidelines.
If the short sale was on a VA loan, the applicant may not have full entitlement available for the new loan.
One of the main factors to determine how the real estate market is doing is to actually look at the books of a company such as Fannie Mae. Just posted on Wednesday, August 8th, Fannie Mae recorded a $5.1 billion profit during the months of April through June. This is a big sign as the company will not need any more bailout money this past quarter.
Fannie Mae received a huge bailout back in 2008 due to being near bankruptcy. This is a good sign that the company is bouncing back as well as the real estate market.
As of the end of the second quarter, Fannie Mae has profited $7.8 billion the first half of 2012. The reason behind the company’s successful quarter is due to “improved home prices, improved sales prices on the company’s real-estate owned properties, and a decline in the single-family serious delinquency rate”, according to executive vice president and chief financial officer, Susan McFarland.
According to Fannie Mae’s press release, single-family serious delinquencies have declined for the ninth consecutive quarter.
Fannie Mae is using these profits to pay back its debts to the Department of Treasury. Fannie Mae has stated to be paying out $2.9 billion to the Department of Treasury for their second quarter dividends.
No one is going to declare a housing recovery as of yet, but it is encouraging when the signs show improvement.
Here is a chart provided my Fannie Mae regarding the withdraws from the Department of Treasury as well as the pay backs between 2008 to 2012.
The Obama administration has been pressuring Edward DeMarco, the acting director of the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, to allow principal reduction on underwater mortgages.
The reason the Obama administration wants Fannie Mae and Freddie Mac to lower the principal is to help reduce the amount of homes resulting in foreclosure.
However, DeMarco has stood his ground and refused to allow Fannie Mae and Freddie Mac to lower the principal balance of underwater mortgages, as it will be coming from the tax payers’ dollars.
Currently, Fannie Mae and Freddie Mac back or own approximately 60% of all mortgages.
The main reason for DeMarco’s refusal in lowering the principal balance is to protect the tax payers’ dollars. According to an article in the LA Times by Jim Puzzanghera, tax payers have contributed $188 billion to the two companies in order to keep them afloat. As of today, $46 billion in dividends has been paid back to the Treasury Department in exchange for the assistance.
DeMarco also believes this program could worsen the underwater mortgage situation, because homeowners may decide to stop paying their mortgages altogether in order to have their principal balance reduced with this program.
DeMarco also explained that Fannie Mae and Freddie Mac offer a variety of programs that will help underwater mortgages. There are programs that lower monthly payments to ease the burden on homeowners that owe more on their home than what it is worth.
From just past experiences, it seems when the government steps in to help our housing situation, there is a negative snowball effect that makes it worse than before. There are programs available to help homeowners in need of lowering their monthly payment, interest rates, and terms.
One of the main programs that helps lower the interest rate and monthly payment of underwater mortgages that are Fannie Mae and Freddie Mac owned is the HARP II program (Home Affordable Refinance Program).
Overall, using more of the tax payers’ dollars to help struggling mortgages is not the solution. DeMarco has made a wise decision in respecting the tax payers’ dollars and realizing that the positive outcome does not outweigh the negative.