Additionally, from a lending perspective, there is a world of difference between a short sale and the sale of a home following preforeclosure. The following are Fannie Mae's most recent guidelines regarding qualifying for a new Fannie Mae backed loan after the sale of a prior property without payment in full to the mortgagee.
If a borrower's last 12 months of mortgage payment contains no 60 day lates or worse prior to a short sale payoff, the borrower may be immediately eligible for a new Fannie Mae backed loan. Fannie Mae does not penalize short sale payoffs under Fannie's definition of a short sale.
If a borrower's last 12 months of payment history show one or more 60 day lates, Fannie Mae considers this a Preforeclosure Sale. The borrower would not be eligible for a new Fannie Mae backed loan for two years.
If a borrower enters into a Deed-in-Lieu of Foreclosure, the borrower must wait 4 years after completion before becoming eligiblefor a new Fannie Mae backed loan.
If a Foreclosure proceeding was initiated by a lender, the borrower would not be eligible for a new Fannie Mae backed loan for 5 years after compltion date for a foreclosure on a primary residence or 7 years for a foreclosure on a second home or investment property.
Exception: If the borrower can demonstrate that a foreclosure on a primary residence was due to extenuating circumstances (such as illness or the death of a co-borrower), Fannie may allow the borrower to qualify for a new Fannie Mae backed loan three years after completion of the foreclosure (two years for extenuating circumstances for a Deed-in-Lieu)
FHA: FHA requires a three year waiting period after completion of forelosure before qualifying for an FHA insured loan.
NOTE BENE: Fannie Mae and FHA set MINIMUM guidelines. Lenders are free to add additional restrictions on top of Fannie Mae, Freddie Mac, or FHA guidelines so long as the additional restrictions comply with ECOA, FHA, and othr fair lending laws.
In any case, it is important to involve a Realtor asearly as possible when a homeower becomes aware that continued performance of his/her mortgage may not be possible.