Fannie Mae is one of the largest conventional mortgage providers today. Borrowers with good credit, low debt ratios, and a consistent income are able to take advantage of the low rates and lucrative terms provided by Fannie Mae. The people that were unable to take advantage of any of the great programs offered by this entity were those with negative historic events, such as a bankruptcy or foreclosure; these borrowers were forced to wait 4 years from the date of the discharge of the event before applying for a conventional loan. Today, however, things have changed – the waiting times are decreased and the chances of getting a conventional mortgage are higher than ever before.
Fannie Mae has created the Extenuating Circumstances Program which is very similar to the FHA Back to Work Program. The premise behind each program is to help those borrowers that had a negative credit event in their lives get back into home ownership. This program is not for everyone as the program does not “forgive” every person that experienced a negative credit event in their life; they only forgive those that meet the following criteria:
- The event occurred just one time
- The circumstances were not something you could control
- Your income was drastically reduced beyond your control
Some of the examples Fannie Mae is willing to accept for its Extenuating Circumstances Program include sudden illness/injury, divorce, or job loss. The event that caused the bankruptcy, foreclosure, or short sale must be able to be directly tied to this event and you must be able to show that you overcame the circumstance and have made a financial comeback since then. If you can prove all of this, Fannie Mae allows for a 2-year waiting period as opposed to its standard 4-year period after a bankruptcy, foreclosure, or short sale.
The Ins and Outs of the Extenuating Circumstances Program
There are some obvious benefits of the Extenuating Circumstances Program:
- You can own a home in a shorter amount of time
- You can have conventional financing which is often more acceptable than any other financing
- You can get your financial life back on track
People that are strictly used to conventional financing will appreciate the lower waiting periods required for this program. However, it is important to understand that the rates and terms that you are used to receiving may be vastly different this time around. Before your negative economic event, when you received conventional financing, you likely had great credit, a low debt ratio, and consistent income. With no history of a bankruptcy, foreclosure, or short sale, you were able to secure a great rate and term for your mortgage. Now that you have a negative event in your credit history, you are forced to take higher rates and less lucrative terms in enhance for the riskiness of your loan.
Comparing your Options
Before you decide that the Fannie Mae program is the only way to go, make sure to compare the rate and terms that you are able to obtain on other loans, including the FHA Back to Work Program. Many people shy away from FHA loans, thinking they are only for first-time homebuyers, when in fact, they are for anyone that qualifies. There are vast differences with this loan type, however, including mortgage insurance premiums that you must pay for the life of the loan as well as an upfront funding fee that you would not pay for a conventional loan. However, if your credit score has not quite bounced back to being considered “good,” meaning it is still below 680, you have a better chance of obtaining a more affordable rate on an FHA loan.
The most important thing to do after a negative credit event is to compare the options available to you. More and more programs are becoming available sooner to borrowers that suffered during the economic crisis, giving you more options. Make sure to shop around with various lenders and see what type of rate and terms are available to you. Don’t assume that you will be given the worst rate and terms because your credit took a hit; if it was a one-time occurrence and you can prove all aspects of the occurrence with a decreased income and then show how you repaired your income and were able to come back, you might be eligible for better terms than you ever thought possible.Click to See the Latest Mortgage Rates»