A home buyer can qualify for a FHA insured or a Fannie Mae loan even after going through a short sale, pre-foreclosure or deed in lieu of foreclosure if certain criteria are met. A short sale or preforeclosure occurs when the borrower is no longer able to make mortgage payments and sells the home for less than the balance of the mortgage. These types of sales are different from foreclosure, when the bank uses legal proceedings to take ownership of a home due to missed mortgage payments, because the homeowner actually sells the property and gives the bank holding the loan some money back.
1. Fannie Mae will not consider individuals who have sold a home in a short sale or deed in lieu of foreclosure until two years after the closing date of the short sale. If you did not make all your mortgage payments on time during the sale process, be prepared to explain why. It’s helpful to bring any documentation of financial hardship from that time period, like copies of medical bills, that support your explanation for being unable to continue making payments on the mortgage involved in the short sale. FHA guidelines require individuals wait until 3 years after the closing date of the short sale.
2. Rebuild your credit. Although short sales are typically less damaging to your credit than mortgage foreclosure, this type of real estate transaction will still impact your credit score. Fannie Mae requires a minimum credit score of 580 for most mortgage products. Check your credit score and credit report from a major credit bureau if you are unsure what state your credit is in.
3. Save for a 20-percent down payment on a Fannie Mae Loan or 3.5-percent on a FHA Insured Loan. Two years after a short sale, you must have a minimum amount of 20 percent of the home’s purchase price available to put down on the mortgage to receive a Fannie Mae loan. The wait time will increase to four years or more if you are unable to provide at least 20 percent, unless special circumstances apply in your situation.
4. Prepare to prove extenuating circumstances, if applicable. Fannie Mae allows for 10-percent down payments two years after a short sale if certain factors attributed to the transaction, like losing your job or incurring medical expenses for you or an immediate member of your family. You will need documentation if these situations apply to you. Bring proof of unemployment benefits and copies of any bills from the time preceding your short sale.
5. Shop for an approved lender. You will still have to go through a recognized mortgage lender to receive a Fannie Mae loan. A list of lenders is available on the official website of Fannie Mae. Check with these lenders to determine what is required to qualify for a loan and compare interest rates on all loans to make sure you are getting the best deal available. You may be able to obtain quotes on the lenders’ websites or call to schedule a meeting with a loan officer.