Fannie Mae says it will make it easier for struggling homeowners who avoid foreclosure now to buy a home in the future.
Under new rules that will take effect in July, Fannie says it will allow homeowners who voluntarily transfer ownership through a “deed in lieu of foreclosure” or complete a short sale, where the home is sold for less than is owed, to apply for a new mortgage it will back.
Fannie Mae and Freddie Mac are government-backed mortgage-finance companies that back about half of the U.S. mortgage market.
Homeowners must wait two years after their home is sold or transferred to apply for a new loan that would be backed by Fannie. Currently, borrowers must wait four years. The rules will remain the same for foreclosures. Fannie still won’t help you until five years have passed.
To be able to apply for a new loan after the two years, you must be able to make a 20 percent down payment, unless you have extenuating circumstances such as a job loss. In that case, you might be able to put down 10 percent.
Of course, Freddie still can’t help your credit score. If you’ve had financial troubles, your credit has likely taken a hit, and it can take up to seven years for that to clear. A poor credit score will almost certainly hamper your ability to get a loan.
Why Avoiding Foreclosure Matters
Foreclosure can severely damage your credit score—often dropping it by 100 to 160 points or more. This financial hit can stay on your credit report for seven years, making it nearly impossible to qualify for a mortgage anytime soon. Even if you manage to qualify, the interest rates and loan terms will likely be far less favorable.
So, if your goal is to move into a new home within the next 24 months, avoiding foreclosure must become a top priority right now.
Steps to Avoid Foreclosure Today
Talk to Your Lender Early
Most lenders are willing to work with you if you reach out before missing multiple payments. Ask about options like forbearance, loan modification, or repayment plans.Create a Budget and Cut Unnecessary Expenses
Track your income and spending. Cancel unused subscriptions, limit dining out, and shift funds toward essential payments like your mortgage.Consider Refinancing or Selling
If you have equity in your home, refinancing might lower your monthly payment. Alternatively, selling the home before foreclosure can help preserve your credit.Explore Government Assistance Programs
Look into federal or state programs designed to help homeowners in financial hardship. Programs like the Homeowner Assistance Fund (HAF) or Making Home Affordable (MHA) may offer relief.Get Professional Help
Speak to a HUD-approved housing counselor. These experts offer free guidance and can help you navigate conversations with your lender or explore your legal options.
Rebuilding for the Future
Avoiding foreclosure today not only protects your credit—it keeps your dreams within reach. If you manage your debts wisely and make consistent payments, your credit score can start to recover in as little as 12–18 months. That puts you back in a strong position to qualify for a new mortgage in two years, just as planned.
Final Thoughts
If buying a new home is in your two-year plan, the time to act is now. Foreclosure can be a long-lasting financial roadblock—but it’s not inevitable. With proactive steps and the right support, you can protect your credit, keep your housing options open, and stay on track toward your next home.
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