Effective October 1, 2010, Fannie Mae, the entity responsible for maintaining a secondary market in home mortgages, is increasing a buyer's wait period if the buyer has experienced a foreclosure.
The current wait period is 5 years, provided the buyer is able to make a larger than normal down payment, and 7 years is the borrower makes a normal down payment. The 5 year option will diminish and all borrowers will now have to wait a period of 7 years before they are able to purchase their next home.
There is one exception to this change, if the borrower is able to document "extenuating circumstances", they will be able to purchase a home with a Fannie Mae (conventional loan) after a 3 year period. The minimum down payment required will be 10% and the borrower may only purchase a principal residence. They will need to wait the full 7 years to buy a second home or a rental property.
How does Fannie Mae define "extenuating circumstances"? These are circumstances which relate to NON-recurring events which are beyond the borrower's control. These "events" are a result of a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. Such circumstances may include, but may not be limited to: divorce, illness, job lay-off, etc...). For more information regarding this definition, please consult a Colorado licensed mortgage broker/lender.
This new guideline only applies to Fannie Mae (conventional loans). FHA and VA loans have shorter waiting periods after a foreclosure.
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