David Sacks / The Balance Learn how long it will take to buy a house after a short sale or foreclosure.
What Are the Waiting Periods?
A conventional loan is a loan that’s not part of a government program. For instance, FHA loans aren’t conventional mortgages; that’s because they’re guaranteed by the Federal Housing Administration. Many conventional loans are backed by Freddie Mac or Fannie Mae. The waiting period will depend on which one you used, as well as other circumstances.
Fannie Mae
Fannie Mae has established a series of waiting periods for borrowers. The waiting periods depend on the type of “derogatory credit event” you experienced. These are the guidelines:
Buying after a foreclosure: Seven yearsBuying after a foreclosure with extenuating circumstances: Three yearsBuying after a deed-in-lieu of foreclosure: Four yearsBuying after a deed-in-lieu of foreclosure with extenuating circumstances: Two yearsBuying after a short sale: Four yearsBuying after a Chapter 7 bankruptcy: Four yearsBuying after a Chapter 13 bankruptcy: Two years from the discharge date or four years after the dismissal date
Freddie Mac
Freddie Mac also has waiting periods for borrowers. They have shorter waiting periods if you had extenuating circumstances.
Buying after a foreclosure: Seven yearsBuying after a foreclosure with extenuating circumstances: Three yearsBuying after a deed-in-lieu of foreclosure: Four yearsBuying after a deed-in-lieu of foreclosure with extenuating circumstances: Two yearsBuying after a short sale: Four yearsBuying after a short sale with extenuating circumstances: Two yearsBuying after a Chapter 7 bankruptcy: Four yearsBuying after a Chapter 13 bankruptcy: Two years from the discharge date or four years after the dismissal dateBuying after any type of bankruptcy with extenuating circumstances: Two yearsMultiple bankruptcy filings in the past seven years: Five years
What Are Extenuating Circumstances?
Fannie Mae defines extenuating circumstances as “nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.” This might include job loss, divorce, illness, or the death of a wage earner. Similarly, Freddie Mac defines extenuating circumstances as “a nonrecurring or isolated circumstance, or set of circumstances, that was beyond the borrower’s control and that significantly reduced income and/or increased expenses.” Waiting periods can be drastically shortened if there are extenuating circumstances. But you’ll need documentation to prove the event. For instance, being unable to afford an interest rate increase on your adjustable-rate mortgage is not considered a circumstance beyond your control.
Other Loan Programs
FHA loans have less stringent waiting periods: three years for buying after foreclosures, short sales, or deeds-in-lieu of foreclosure, and one to two years for bankruptcies. The FHA will waive the waiting period and allow you to borrow immediately in some short-sale situations. This could be the case if you weren’t in default on your mortgage and you had at least one year of timely payments. But these government-backed mortgages tend to be more expensive. They have higher interest rates and require that you carry mortgage insurance. VA loans have even more lenient requirements. You can be eligible two years after a foreclosure, two years after a Chapter 7 bankruptcy, and one year after a Chapter 13 bankruptcy. Some lenders have no waiting period after a short sale.
The Bottom Line
A short sale, foreclosure, or bankruptcy is a stressful event. But you can recover. With time, you can even buy a home. If extenuating circumstances like divorce, medical bills, or job loss, led to your short sale or foreclosure, the waiting periods can be very short.
