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Posted: 6:00 a.m. Tuesday, Sept. 10, 2013

Buying a home again after foreclosure

New rules could put you in a house again after 12 months

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By Clark Howard

ClarkHoward.com


If you thought you were barred from buying a new house after a foreclosure or a short sale, the Los Angeles Times  reports the rules are about to change.

Let's talk for a moment about FHA loans, which are traditional government financing that requires 3.5% down. If you went through a foreclosure, you were put into a penalty box for 3 to 5 years in the past and couldn't buy another FHA home during that period.

But now under certain circumstances, you may be able to get an FHA loan again after just 12 months. Why? Because the FHA went back and analyzed behaviors and found folks who lost their homes after extended unemployment or a massive drop in income -- situations that are termed "beyond a borrower's control" -- don't pose as much risk as previously thought.

If that's your situation and you can show you've recovered financially and you agree to attend housing counseling…you will have the normal wait of 3 to 5 years waived and you may be able to qualify again. A lot of lenders may not be aware of this. You may have to educate them.

Meanwhile, with Fannie Mae loans, if you have a foreclosure, you are normally banned for 7 years from buying a new home. However, there was a different rule for short sales. If you cooperated with your lender, took care of your property, and got a short sale done, you were supposed to be banned only for 2 years.

But here's what happened. Fannie Mae discovered that the credit bureaus are so inaccurate with their data, that they were posting short sales as foreclosures on your credit report in error! They were putting you in a penalty box for 7 years and devastating your credit. So instead of facing the 2-year penalty…you were unjustly facing 7 years.

That's why it's so important that you go to AnnualCreditReport.com and see what's on your reports with each of the credit bureaus.

Fannie Mae's "fix" is that if you can provide documentation to prove you did a short sale (not a foreclosure), they'll take you out of the penalty box after 24 months, not 84 months. That's a huge difference!

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