Fannie Mae/Freddie Mac requirements regarding past foreclosure

A seven-year waiting period is required, and is measured from the completion date of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower.

Exceptions for Extenuating Circumstances:
A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the completion date of the foreclosure action. Additional requirements apply between three and seven years, which include:

  • Maximum LTV, CLTV, or HCLTV ratios of the lesser of 90% or the maximum LTV, CLTV, or HCLTV ratios for the transaction per the Eligibility Matrix.
  • The purchase of a principal residence is permitted.

Extenuating circumstances do not include divorce, only death or what I call “dismemberment” where extended hospitalization or serious medical issue arises.

Fannie/Freddie requirements regarding past deed-in-lieu transfers

These transaction types are completed as alternatives to foreclosure. A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. A pre-foreclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer.

The following waiting period requirements apply:

Waiting Periods

  • Two years, 20% down required.
  • Four years, 10% down required.
  • Seven years LTV ratios per the Eligibility Matrix

FHA requirements regarding past foreclosure:

  • 3 years, except under extenuating circumstances. See above.
  • 12 months is possible under the FHA “Back to work” program which is only applicable if the borrowers’ income decreased by 20% leading up to the foreclosure.

FHA requirements regarding past deed-in-lieu transfers:

Same as past foreclosure

The only other option to finance a new home with a foreclosure or deed-in-lieu sooner than these timelines is with private financing/contract for deed, which generally require a 20% or greater down payment and unfavorable terms.

FHA now allows financing approval with bankruptcy or foreclosure at least 12 months old.

The lender must verify and document that:

  • A minimum of twelve (12) months have elapsed since the date of foreclosure or deed-in-lieu
  • The foreclosure or deed-in-lieu was the result of the Economic Event.