Fannie Mae’s mandatory waiting period after bankruptcy, short sale, & pre-foreclosure is just 2 years

December 11, 2018 - 4 min read

Editor's note: Fannie Mae instituted these changes in July 2014 and they are still in effect. The Mortgage Reports periodically re-verifies mortgage guidelines and republishes the article accordingly. The above publish date indicates the date of the last verification. For more information on the guideline, see the 2024 Fannie Mae Single Family Selling Guide section B3-5.3-07.

Mandatory waiting period reduced to 2 years as of July 2014

It’s getting easier to get approved for a mortgage.

Following a similar change with loans, mortgage-backer Fannie Mae has reduced the mandatory waiting period to make a mortgage application after a bankruptcy, short sale, or pre-foreclosure.

Borrowers no longer must wait 4 years before re-applying to get a mortgage.

Borrowers can now re-apply for a loan just two years after a bankruptcy, short sale, or pre-foreclosure. This matches FHA’s lenient minimum and a major improvement for conventional mortgage borrowers nationwide.

Mortgage guidelines are loosening across all loans.

Fannie Mae is the most recent publisher of mortgage guidelines to help borrowers with a history of poor credit because of bankruptcy, short sale, and pre-foreclosure.

Verify your mortgage eligibility

New Fannie Mae rules for bankruptcy, pre-foreclosure, & short sales

Recently, Fannie Mae changed its mortgage rules for borrowers with a recent bankruptcy, pre-foreclosure, or short sale. The group has reduced its mandatory waiting period after such an event from four years to 2 years.

Freddie Mac followed suit, reducing its waiting period to 24 months. Like Fannie Mae, it allows borrowers to apply when two years have passed since a significant derogatory event.

“Significant derogatory event” is defined as any one of the following which may appear on a person’s :

  1. A pre-foreclosure
  2. A short sale
  3. A deed-in-lieu of foreclosure
  4. A bankruptcy
  5. A mortgage loan charge-off

However, just because you qualify for a conventional mortgage via Fannie Mae doesn’t necessarily mean it’s the best loan for you. Significant derogatory events can affect a person’s credit score by 100 points or more, and conventional mortgage rates change for borrowers with generally-low scores.

If you’ve had a significant credit event, then, it’s important to compare conventional mortgage rate quotes against FHA mortgage rates to make sure you’re getting “the best deal”. FHA mortgage rates are typically lower than comparable conforming rates — especially for credit scores below 680.

FHA mortgage insurance premiums can add to the overall cost of an FHA loan, though.

Any mortgage lender can help you decide which loan program best suits your needs. Explore all available options — you never know how much you might save.

Verify your mortgage eligibility

New Fannie Mae guidelines for derogatory events

Fannie Mae has reduced its mandatory waiting period after a pre-foreclosure, short sale, or bankruptcy.

Prior to the change, Fannie Mae required borrowers to wait four years after a significant derogatory credit event before re-applying for a home loan.

That mandatory waiting period is now just 2 years.

The table below compares Fannie Mae prior policy against its current one; and against the FHA Back to Work program which may be more suitable for borrowers with less available down payment.

FHA loans permit home down payments of just 3.5 percent. Fannie Mae loans typically require 5 percent down or more (although ).

Prior Fannie Mae MinimumNew Fannie Mae MinimumCurrent FHA Minimum
Short Sale4 Years2 Years2 Years
Bankruptcy4 Years2 Years2 Years
Pre-Foreclosure4 Years2 Years2 Years

For a Fannie Mae loan, “extenuating circumstances” are situations which (1) occur one-time only; (2) are beyond the borrower’s control; and, (3) result in a sudden, significant, and prolonged reduction in income.

The label of “extenuating circumstances” may also be applied to situations in which a borrower is subject to a catastrophic increase in financial obligations.

Examples of extenuating circumstances may include divorce, illness, sudden loss of household income, and/or job loss.

Mortgage applicants wishing to apply for a loan using Fannie Mae’s Extenuating Circumstances program should be prepared to provide documentation in support of the claim. Valid documentation may include a copy of a divorce decree; medical bills; and, notice of job loss or job severance papers.

Borrowers should also be prepared to write a brief letter describing the hardship and how it directly led to the bankruptcy, pre-foreclosure, or short sale. The letter should make it clear that default was the borrower’s only reasonable course of action, given the circumstances.

Borrowers should also make it clear that the derogatory event was a one-time event, and that financial obligations have been paid on-time in the months since.

Verify your mortgage eligibility

Buyers gain additional purchasing power

Along with softening mortgage guidelines, today’s mortgage rates are making it easier to get mortgage-qualified.

This is because low mortgage rates lower a mortgage applicant’s expected monthly payment, which, in turn, reduces its .

When mortgage rates are low, purchasing power extends.

Extra purchasing power can mean the difference between buying a 2-bedroom home versus a 3-bedroom one; between buying a home with large closets versus small closets; and, between buying an upgraded home versus a “dated” one.

Extra purchasing power can also mean the difference between buying in a top-rated school district and a second-tier one.

And, now, with Fannie Mae’s looser mortgage guidelines, more mortgage applicants can qualify for home loan financing.

What are today’s mortgage rates?

Mortgage lenders have loosening mortgage guidelines, so it’s easier to get mortgage-approved. With mortgage rates low, it’s an excellent time to compare today’s rates.

Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Time to make a move? Let us find the right mortgage for you

Dan Green
Authored By: Dan Green
The Mortgage Reports contributor
Dan Green is an expert on topics of money and mortgage. With over 15 years writing for a consumer audience on personal finance topics, Dan has been featured in The Washington Post, MarketWatch, Bloomberg, and others.