Waiting Period After Short Sale or Deed in Lieu of Foreclosure

This page will tell you everything you need to know about qualifying for a mortgage after a past short sale or deed in lieu of foreclosure.

These guidelines get incredibly tricky, especially if your mortgage was included in a bankruptcy.  It's absolutely vital that you work with an experienced mortgage professional that has experience with these guidelines.

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Bankruptcy

Qualify for a mortgage after a Bankruptcy

Foreclosure

Qualify for a mortgage after a Foreclosure

Do You Have Questions About Qualifying?

Waiting Periods Vary Based on Type of Loan You Are Using

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Short Sale & DIL Waiting Periods

Fannie Mae Waiting Periods

These guidelines apply specifically to how the Fannie Mae DU (Desktop Underwriter) Automated Underwriting System will look at a past short sale or deed in lieu of foreclosure.

  • 4 Years from a Short Sale or Deed in Lieu 

A four-year waiting period is required, measured from the close of escrow on a short sale, or the execution of the new grant deed with the deed in lieu of foreclosure.

Mortgage Included in Bankruptcy

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy.

Otherwise, the greater of the applicable bankruptcy or short sale or deed in lieu waiting periods must be applied.

Experience Counts.  A short sale or deed in lieu that occurs after a bankruptcy is not actually addressed in the Fannie Mae guidelines.  Myself and several other lenders in our Expert Network have written guidance from Fannie Mae stating that it's allowed.

My point is, unless you're working with an experienced mortgage professional that does this for a living, they may not know that this guideline applies to your situation.

If this mortgage was discharged in a bankruptcy, you could shave years off your waiting period!

Freddie Mac Waiting Periods

These guidelines apply specifically to how the Freddie Mac LPA (Loan Products Advisor) Automated Underwriting System will look at a past short sale or deed in lieu of foreclosure.

  • 4 Years from a Short Sale or Deed in Lieu 

A four-year waiting period is required, measured from the close of escrow on a short sale, or the execution of the new grant deed with the deed in lieu of foreclosure.

Mortgage Included in Bankruptcy

This is where Freddie Mac gets even harder to pin down.  This guideline is not documented anywhere, and it's honestly not popular enough for it to come up much.

Fannie Mae guidelines are much more accessible and underwriters seem to have more experience using DU for these cases.  There are a lot of moving parts with these scenarios, and it's going to take someone with experience to get you through it.

Experience Counts.  A short sale or deed in lieu that occurs after a bankruptcy is not actually addressed in the Fannie Mae or Freddie Mac guidelines, but it does follow the spirit of other guidelines that include a foreclosure after bankruptcy.

Myself and several other lenders in our Expert Network have written guidance from Fannie Mae stating that it's allowed.

My point is, unless you're working with an experienced mortgage professional that does this for a living, they may not know that this guideline applies to your situation.

If this mortgage was discharged in a bankruptcy, you could shave years off your waiting period!

FHA Waiting Periods

These guidelines apply specifically to how FHA loans are underwritten using either Fannie Mae DU (Desktop Underwriter), or Freddie Mac LPA (Loan Products Advisor) Automated Underwriting Systems will look at a past short sale or deed in lieu of foreclosure using FHA guidelines.

  • 3 Years from a Short Sale or Deed in Lieu 

A three year waiting period is required, measured from the close of escrow on a short sale, or the execution of the new grant deed with the deed in lieu of foreclosure.

Mortgage Included in Bankruptcy

FHA looks at a a short sale or deed in lieu of foreclosure done on a mortgage discharged through bankruptcy as two separate credit events.  

Each credit event carries it's own individual waiting period, and all waiting periods run concurrently.

Experience Counts.  A short sale or deed in lieu that occurs after a bankruptcy is not actually addressed in the Fannie Mae or Freddie Mac guidelines, but it does follow the spirit of other guidelines that include a foreclosure after bankruptcy.

Myself and several other lenders in our Expert Network have written guidance from Fannie Mae stating that it's allowed.  This might be an option you can explore.

My point is, unless you're working with an experienced mortgage professional that does this for a living, they may not know that this guideline applies to your situation.

If this mortgage was discharged in a bankruptcy, you could shave years off your waiting period!

VA Waiting Periods

These guidelines apply specifically to how VA loans are underwritten using either Fannie Mae DU (Desktop Underwriter), or Freddie Mac LPA (Loan Products Advisor) Automated Underwriting Systems will look at a past deed in lieu of foreclosure using VA guidelines.

  • 2 Years from a Deed in Lieu 

A two year waiting period is required, measured from the execution of the new grant deed with the deed in lieu of foreclosure.  The VA underwriting manual does not recognize a short sale as a financial event.  Follow automated DU findings for guidance.

Mortgage Included in Bankruptcy

VA considers Bankruptcy, and any subsequent foreclosure or deed in lieu as separate events, enforcing the waiting period of each independently and concurrently.

VA Manual Underwriting

VA mortgages can be very flexible if you are working with an experienced loan officer and underwriter who are not afraid to get their hands dirty.

VA waiting periods can be addressed with manual underwriting if the hardship is the result of an event outside of your control.

Experience Counts.  If you fall victim to a big box VA lender's call center and are in need of manual underwriting, it is likely you will simply be told you do not qualify.  This may not be true. 

ALWAYS work with a loan officer that is a VA expert, and solves these kinds of problems for a living.

USDA Waiting Periods

These guidelines apply specifically to how the USDA GUS (Guaranteed Underwriting System) Automated Underwriting System will look at a past short sale or deed in lieu of foreclosure

  • 3 Years from a Short Sale or Deed in Lieu 

A three year waiting period is required, measured from the close of escrow on a short sale, or the execution of the new grant deed with the deed in lieu of foreclosure.

Foreclosure and Bankruptcy on the Same Mortgage

In December 2014, USDA Guaranteed updated their underwriting guidelines to follow Fannie Mae's lead regarding foreclosure on a mortgage discharged in bankruptcy.

This guideline ONLY applies if the short sale or deed in lieu takes place after the discharge of the bankruptcy.  If the foreclosure took place prior to the bankruptcy, you will be subject to the three year waiting period.

Experience Counts.  The experience of the loan officer working for you will determine the options available to you.  Many folks get told "NO" when the real answer was "Yes", and the other loan officer simply didn't know.

As soon as you introduce a complication like a mortgage included in a bankruptcy, then later lost to short sale or deed in lieu of foreclosure, you need to work with someone with experience.

Jumbo Waiting Periods

Jumbo underwriting guidelines are going to vary widely depending on the financing institution you are working with.

Some depository banks will require longer waiting periods than traditional underwriting guidelines.

Expect a minimum 4 year wait for most Jumbo mortgage lenders, with a higher waiting period for others.  

There are many portfolio Jumbo lenders that will seriously look at compensating factors like credit profile since bankruptcy, employment history, equity and reserves, and may offer reduced waiting periods.

It is also rare, and possible for portfolio lenders to offer exceptions for mortgages included in bankruptcy when there are compensating factors.

A portfolio loan would be an option if you are looking for reduced waiting periods or more flexible qualifying guidelines.

Experience Counts.  Jumbo financing requires great attention to detail and organizational skills.  Using a mortgage professionals that solves these types of problems for a living will save you a lot of time and trouble.

Portfolio Loan Waiting Periods

A portfolio loan is not a specific loan program, but represents a broad range of unique underwriting guidelines offered by different lenders.

There are portfolio loans that will allow you to buy a new home one day from a bankruptcy, foreclosure, short sale or deed in lieu.

If you're interested in this type of timeline, less than 24 months from the bankruptcy, you can expect a minimum of 10% to 20% down payment will be required.  

Expect interest rates and closing costs to be higher than traditional financing, and that's ok.  A portfolio loan is a "stepping stone" to bridge the waiting period before you are eligible for traditional financing.

I encourage you to run the numbers comparing buying now with higher rates and fees versus waiting until you're eligible for traditional financing.  When you look at the equity growth, tax deductions and forced savings benefits of home ownership, this comes down to a math problem.

Experience Counts.  Make sure you are getting advice from a loan officer that has experience working with portfolio loan underwriting guidelines. 

Because no two portfolio loans are going to have the same guidelines, understanding the basics, and having access to multiple resources is the job of a professional loan officer.

Extenuating Circumstances Exception

Reduce Waiting Periods?

You may be able to shorten the published waiting periods if your hardship was the direct result of an extenuating circumstance. 

An extenuating circumstance is defined as a one-time event that was completely outside your control, and is unlikely to happen again.  This is where it gets tricky.

FHA considers the death or permanent disability of a primary wage earner as an extenuating circumstance, but that's it. 

Conventional underwriting guidelines tend to be more flexible and will include divorce, lay off, and other potential one-time events that you may not have control over.

If you think you are to qualify for an extenuating circumstance exception, it is vitally important that you work with a mortgage professional that has experience with extenuating circumstances. 

The documentation, attention to detail, and ability to tell the story is incredibly important to even have a chance at getting your exception.

Drop me a question below if you have any questions about extenuating circumstances.

Scott Schang
Founder, FMWH

FAQ's About Qualifying for a Mortgage After a Short Sale or DIL

This is one of the most common questions here at Find My Way Home, and one that comes with more questions usually.

Your waiting period, and the start of that waiting period will be calculated differently depending on what type of loan you're trying to qualify for.

Conventional, FHA, VA & USDA guidelines each have different waiting periods based for bankruptcy, foreclosure, short sale, or deed in lieu.

In some cases, a mortgage included in a bankruptcy that is lost to foreclosure, short sale or deed in lieu years later, can use the bankruptcy waiting period as your starting period.

I recommend you reach out to us with your specific situation to get an accurate timeline for when you can become a home owner again.

 

At the time of your original bankruptcy petition, many folks checked the box that said your intention was to keep the home after the bankruptcy.  This causes a lot of confusion for inexperienced loan officers and underwriters.

Unless you specifically sign a separate reaffirmation agreement with your lender (which is incredibly rare), your mortgage was included and discharged through the bankruptcy.

The documentation that your loan officer and underwriter will need is a document from the court called a Notice to Creditors, or Certificate of Notice (I've seen it called both).

This is a list of creditors that were notified by the bankruptcy court that their debt has been discharged.  If you were not given a copy of this document after your discharge, you can get it from the court, or your bankruptcy attorney.

Yes, there are a couple of options for shortening the waiting periods enforced by Fannie Mae, Freddie Mac, FHA, VA and USDA.

The first option is asking for an Extenuating Circumstances Exception.  An Extenuating Circumstance is defined as a one time event that is completely outside of your control that led directly to your hardship.

Depending on what underwriting guidelines you are following, that "one time event" has different definitions.  FHA defines an extenuating circumstance as the death or permanent disability of a primary wage earner.

The other, more accessible option is to use a portfolio loan that is "outside the box", and does not follow Fannie Mae, Freddie Mac, FHA, VA or USDA waiting periods.

Portfolio loans will typically require a higher down payment than traditional financing and often carry higher rates and fees.

Many folks choose to use a portfolio loan to bypass waiting periods.  When you do the math, the benefits of home ownership almost always outweigh the cost of using an "outside the box" solution to become a home owner again.

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