After bankruptcy, how soon can I get approved for a new mortgage?
Yesterday the mortgage giant Fannie Mae, now owned the the federal taxpayers, announced a new policy on qualifying for a new mortage, after you lose your house in bankruptcy, foreclosure, or short sale.
They say they want to discourage people who “just walk away” from their mortgages, particularly in states, like California, where the mortgage company cannot come after you for the money. (Under Virginia law, they can.)
So Fannie Mae now won’t back a mortgage for someone who gave up a house in foreclosure until seven years have passed from the foreclosure date. They call this a “Seven-Year Lockout Policy for Strategic Defaulters”
Now, there is an exception that I’m calling the loan mod/extenuating circumstances exception. The seven year lockout does not apply to people who can show the foreclosure was caused by “extenuating circumstances.” That’s not defined, but I think it would certainly include unemployment, divorce, and probably reduced hours or loss of bonus or commission during the recession. If you are giving up your house, and want to buy again soon, keeping proof of that would be important.
The seven year lock out also does not apply to people who tried to get a loan mod. “We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president.
Only a three year waiting period applies to people who tried to get a loan mod and to people who had extenuating circumstances. (I’m not totally clear whether that means you have to do both, or if either one is enough.)
If you shortsale the house, or do a deed in lieu, the waiting period is only two years. (This is one of the very few benefits I see in doing a shortsale. September 7, 2012 Washington Post had a good article on the big damage a shortsale does to your credit score. You can read that here.)
Lots of people think bankruptcy is the worst thing you can do–those people are wrong. Fannie Mae regulations require only a two year waiting period after the bankruptcy–again if the bankruptcy was caused by extenuating circumstances. (Again, it’s important to keep a file documenting loss of income or whatever caused the problem.)