Mortgage After Chapter 7 Bankruptcy And Foreclosure
Since the borrowers wife completed her short sale less than four years prior to the loan application and the short sale was not considered an extenuating circumstance, she was not eligible to be on the loan. Armed with a cautious sense of optimism we proceeded in qualifying our borrower using the Foreclosure and Bankruptcy on the Same Mortgage guideline. We informed the borrower it would probably take forty-five days to close and would have to be very diligent about documenting the file with updated pay stubs, bank statements, and other items requested by the underwriting. The file went through the process without any problems and closed in sixty days. The only reason it did not close in forty-five days or less was that the seller wanted to close at the end of the month, adding three weeks. All in all a success and we have a happy homeowner!
You Can Buy A Home After Bankruptcy
Buying a house after bankruptcy will not feel like a walk through a rose garden. You will have to wait. Remember that the waiting time requirements arent there to prevent people who have filed bankruptcy from ever owning homes. They simply provide a buffer that allows you to build up your credit and finances and prove that your past mistake really is in the past. They are there to protect you from overextending yourself too soon.You will face suspicion and youll have to work hard to address it. Dont blame the loan officers for being extra careful with your application. Put yourself in their shoes and think about what youd want to see and hear if you were the one looking at your application. Of course theyre concerned about your creditworthiness. Anyone would be. Its up to you to show that things have changed.
Bankruptcy is not a financial death sentence. Many people who have come out of bankruptcy go on to become successful, satisfied homeowners. If you make the right moves you can do it too!
The Foreclosure Occurred Before The Bankruptcy
Things are simple when the foreclosure happens before the bankruptcy. The waiting period starts at the bankruptcy discharge date.
For instance, your lender foreclosed on you in June 2016. Then, you filed for bankruptcy in November, and obtained your discharge in December. The waiting period begins in December 2016. If you wanted a conforming loan, for instance, you would be eligible in December 2020. This assumes the bankruptcy was not caused by an extenuating circumstance, in which case the waiting period would expire in December 2018.
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Waiting Period For Other Kinds Of Loans After Foreclosure
For most other types of loans, like subprime loans, waiting periods can vary. Many aren’t as lenient as for FHA-insured and VA-guaranteed loans. The waiting period can range from two to eight years or longer.
Some lenders might shorten the post-foreclosure waiting period, provided that you make a larger down paymentâfor example, 25% or moreâand agree to pay a higher interest rate.
Mortgage Options After Bankruptcy And Foreclosure
We will go into depth in qualifying for mortgages after the Chapter 7 Bankruptcy discharged date and the mortgage options homebuyers have. We will show you how to rebuild and reestablish your credit so when you meet the mandatory waiting period requirements, you will be ready to go through the process of obtaining a mortgage. Mortgage Lending Guidelines with regards to the mortgage part of bankruptcy are different for all mortgage loan programs. FHA has its own mortgage lending guidelines with regards to lending guidelines on the mortgage part of the bankruptcy. Fannie Mae has just come up with new mortgage lending guidelines with regards to guidelines on the mortgage part of the bankruptcy
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Draft A Letter Of Explanation
Buying a house after bankruptcy involves the same process that someone who has never been through bankruptcy uses. Youll need to fill out applications, submit personal financial information, negotiate with a sellers agent, make an offer and have a home inspected before heading to closing. A letter of explanation of bankruptcy can boost your chances of being approved.
Lenders are always taking a risk when they approve a mortgage. Youre going to look like a riskier risk with a recent bankruptcy in your history. Building up your credit, paying all bills on time, keeping your debt to income ratio low and saving up a nice down payment are the most important things for getting yourself in the approval zone. A letter of explanation of bankruptcy is an extra step that can help to prove that you can be trusted to repay your mortgage even though there is a pretty big red flag in your history.
Getting A Mortgage Following Bankruptcy Or Foreclosure
Had a bankruptcy or foreclosure? We have some good news: The Federal Housing Administration , Fannie Mae and Freddie Mac have all recently announced they were shortening the mandatory waiting period for qualifying for a home loan down to two years after a bankruptcy discharge or foreclosure. FHA announced it was shortening its own minimum waiting period to just one year, in its Back To Work program announced last spring.
Under the old rules, each agency imposed a four-year waiting period before they would be willing to approve a new mortgage loan. Fannie Mae reduced the waiting period in 2015, Freddie Mac made the announcement earlier this year, as did the FHA.
That means its now much easier for thousands of Americans to get a loan, even after experiencing a significant credit event. The new rules may benefit you if you have undergone any of these processes:
- Pre-foreclosures
- Mortgage loan charge-offs
- Forbearance agreements
The bottom line: Its still very possible to get approved for a home mortgage, even after a major financial setback like a chapter 7 bankruptcy or having lost your home through a foreclosureand you wont have to wait the ten years it takes for a bankruptcy to scroll off your credit report, either. You can still qualify, even if your bankruptcy or foreclosure appears on your report.
Heres what you need to know:
Bankruptcy
FHA Considerations
VA Loan Considerations
Conventional Loans
The Hard Money Alternative
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The Benefit Of Filing For Bankruptcy For A Fresh Financial Start
The borrower and his wife decided to file Chapter 7 Bankruptcy in 2010 and start over. Included in that Chapter 7 bankruptcy was the borrowers investment property, which would be playing a significant role in the borrowers pursuit of homeownership in the future. In this article, we will discuss the mortgage part of the Bankruptcy case scenario on Conventional loans.
How To Get Better Mortgage Rates After Bankruptcy
Bankruptcies are common and dont affect a persons ability to apply for a mortgage. Lenders treat bankruptcies like other credit events. Eligible buyers can still get mortgage-approved.
However, when buying a home after bankruptcy, you can improve your access to lower mortgage rates and low-down payment loans by raising your credit score.
Take these steps to improve your credit and get pre-approved for a mortgage.
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Watch Your Debt To Income Ratio
Mortgage lenders pay close attention to your debt to income ratio. This is the percentage of your monthly income that you use to pay debts. When you emerge from bankruptcy your debt to income ratio is likely to be low, since many of your debts will be discharged. If youre considering a mortgage, try to keep it low. Most mortgage lenders will not lend to a borrower with a debt to income ratio higher than 43%. They generally prefer to see a ratio below 36%. Keeping your total debt level low will help your chances of getting a mortgage. Be aware of your debt to income ratio and try to keep it at the level that mortgage lenders want to see.
Calculate your DTI: Debt-to-income Ratio Calculator
Mortgage Bankruptcy Waiting Period
Looking for the conventional, VA, USDA, and FHA foreclosure waiting period and bankruptcy waiting period? The mortgage waiting period depends on the type of mortgage loan program. There are portfolio and non-QM loan programs that do not require seasoning on derogatory events that are covered later in the article.
There are three different types of government loans: FHA, VA, and USDA. Mortgage bankruptcy and foreclosure guidelines are set by Fannie Mae and Freddie Mac for conventional loans. Conventional and government loans both have a waiting period after a foreclosure and bankruptcy.
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Focus On Repairing Your Credit Score
Bankruptcy can pummel your credit, and youll need to whip that score into shape to get a mortgage. If youre planning on buying a house after bankruptcy youll need to get your newly decimated credit score up to a lenders minimum requirement.
Youre typically looking at minimum scores of 580 for VA and FHA loans, 620 for conventional loans and 640 for USDA loans.
If you can push your score higher youll have more options for lower down payments and favorable interest rates.
Rebuilding credit following bankruptcy is harder than building credit from scratch. Your bankruptcy discharge means you dont have to pay some loans, but they will stay on your credit report for years. You cant change that, so youll need to focus on reestablishing credit using new accounts.
Chapter 13 Bankruptcy Waiting Periods
The waiting period to buy a home after a Chapter 13 bankruptcy ranges from zero days to two yearsdepending on your mortgage type.
From the date of discharge:
- FHA loans: No waiting period
- VA loans: No waiting period
- USDA loans: 1-year waiting period
- Conventional loans: 4-year waiting period
A typical Chapter 13 bankruptcy period lasts between three and five years, depending on the amount of debt and the debtors annual income.
With a Chapter 13 bankruptcy, your credit isnt affected as much as Chapter 7, which stays on a credit report for seven years.
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What Are Todays Mortgage Rates
Mortgage lenders have loosening mortgage guidelines, so its easier to get mortgage-approved. With mortgage rates low, its an excellent time to compare todays rates.
Get todays 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.
Waiting Periods For Veterans Administration Loans
Overview: Under the VA guidelines, the waiting periods range from one year to two years depending on which credit event is at issue, and whether you can demonstrate any special circumstances.
Below is a table summarizing the waiting period requirements, and any applicable additional requirements, for each type of event recognized by the VA:
To qualify for the shorter waiting periods for Chapter 7 bankruptcies, foreclosures, or deeds-in-lieu, you would have to demonstrate that the event was caused by extenuating circumstances beyond your control such as unemployment, prolonged strikes, or medical bills not covered by insurance. Divorce is not generally viewed as beyond your control.
HELPFUL TIP: In a foreclosure situation, if the foreclosed loan was a VA loan, you may not have full entitlement available for the new loan. In other words, entitlement might not be restored if your original VA loan was not repaid in full. Work with the lender to check your Certificate of Entitlement and see how much you are permitted to borrow without putting any money down.
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Fha Versus Conventional Mortgage After Chapter 7 Bankruptcy Guidelines
Dale Elenteny is an associate contributing editor for FHA Lend Mortgage. Dale is a 20-plus-year veteran in the mortgage industry. Dale Elenteny is an expert on FHA, VA, USDA, Non-QM, and Conventional loans. The good news for homebuyers who had a mortgage part of bankruptcy is that there is a four-year waiting period to qualify for a Conventional loan from the discharged date of their chapter 7 bankruptcy regardless of when the actual recorded date of the foreclosure is.
How To Apply For A Fannie Mae Home Loan
Many conventional lenders offer Fannie Mae loan products. Shop around with at least three to five lenders to gather quotes, ideally on the same day. Request a rate lock once youve found a mortgage offer that fits your needs and budget.
Fannie Maes HomeReady program allows you to use approved down payment assistance money if youre low on cash for a down payment. Ask your lender if they offer the DPA program youre interested in.
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Can I Get A Mortgage After Bankruptcy
While declaring bankruptcy can negatively impact your in the short term, you may still qualify for a mortgage loan. However, it will take some time and effort. How long a bankruptcy keeps showing up on your credit report depends on the type of bankruptcy filed. Chapter 7 bankruptcies remain on credit reports for as long as 10 years while Chapter 13 bankruptcies remain on credit reports for seven years.
Required Credit Scores For New Mortgages
As of 2022, Fannie Mae generally requires borrowers to have a credit score of 620 or 640, depending on the situation. Depending on the circumstances, Freddie Mac requires a score of 620 or 660 for a single-family primary residence. Of course, lenders may have requirements that are stricter.
An FHA-insured loan with a low down payment requires a score of 580. You could still qualify for an FHA-insured loan with a FICO score of 500 to 579, but instead of making a 3.5% down payment, your down payment would be higher, at least 10%. But because a foreclosure might cause your FICO score to drop by a hundred points or more, perhaps below 500, you might not qualify for a mortgage loan, even after the waiting period expires.
The VA doesn’t set a minimum credit score requirement. But it requires lenders to review the entire loan profile. Often, lenders require a FICO credit score over 620. Some lenders permit lower scores, but borrowers must undergo additional scrutiny and meet other requirements to get a loan.
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Understanding The Secondary Mortgage Market
Lenders use their warehouse line of credit to fund loans they fund.
Once they fund the loans, lenders need to sell the closed loans on the secondary market. They can sell the loans they fund to a larger mortgage banker, bank, credit union, or directly to Fannie Mae and/or Freddie Mac. Eventually, the loans get bought by Fannie Mae and/or Freddie Mac. Fannie Mae and Freddie Mac will not purchase any mortgages that do not conform to their agency mortgage guidelines.
This is why conventional loans are commonly referred to as conforming loans. This is the reason why lenders make sure all of the conventional loans conform to Fannie Mae and/or Freddie Mac agency guidelines. The role of Fannie Mae and Freddie Macis to provide liquidity in the mortgage markets. Purchasing closed loans by lenders on the secondary market is how Fannie/Freddie provides liquidity in the mortgage market. It enables lenders to sell the loans they funded and pay down their warehouse line of credit. With room on their warehouse line of credit, lenders can originate and fund more loans.
What You Need For Preapproval
With or without a history of bankruptcy, youâll need good enough credit to get preapproved. Hereâs what that means for each loan type.
- Conventional Fannie/Freddie mortgage: 620
- FHA loan: 500 with at least 10% down 580 with at least 3.5% down
- VA or USDA loan: No minimum, but you are more likely to get approved with a score of at least 640
Gather these documents before you apply so lenders will be able to quickly make a preapproval decision on your loan.
- Your Social Security card
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Waiting Period For Fha
To qualify for a loan that the Federal Housing Administration insures, you typically must wait at least three years after a foreclosure. The three-year clock starts ticking when the foreclosure case has ended, usually from the date that the home’s title transferred as a result of the foreclosure. If the foreclosure also involved an FHA-insured loan, the three-year waiting period starts when FHA paid the prior lender on its claim.
A lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the borrower’s control, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure. Divorce is not considered an extenuating circumstance. An exception may, however, be granted where a borrower’s mortgage was current at the time of the divorce, the ex-spouse received the property, and the mortgage was later foreclosed. Also, the inability to sell the property due to a job transfer or relocation to another area doesn’t qualify as an extenuating circumstance.
Understand The Qualifications For Fannie Mae Freddie Mac Fha & Va Mortgage Loans
Once you have rebuilt your credit and waited the applicable time period, you can apply for a mortgage. Be prepared to provide potential lenders with lots of information, including two-years of tax returns, recent paycheck stubs, banking account information, bankruptcy discharge papers, a list of liquid assets, and a written explanation of the financial issues that led up to your bankruptcy, and what you have done to avoid such difficulties in the future.
In general, Fannie Mae and Freddie Mac require a waiting period of four years following the bankruptcy discharge or dismissal date however, with extenuating circumstances these lenders will approve mortgages on a case by case basis after two years.
Fannie Mae requires a four-year waiting period after a Chapter 7, measured from the discharge or dismissal date of the bankruptcy action. It will permit a two-year waiting period if extenuating circumstances can be documented.
Fannie Mae distinguishes between Chapter 13 bankruptcies that were dismissed or discharged. Fannie measures the waiting period required for chapter 13 bankruptcy actions as follows: twoyears from the discharge date, or four years from the dismissal date. According to Fannie Mae, the shorter waiting period following a discharge gives borrowers some waiting period credit for the time needed for the successfully complete a Chapter 13 plan and receive a discharge. A foreclosure can add an extra year.
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