Conventional Loan Waiting Period After A Deed In Lieu And/Or Short Sale
Conventional loans have higher underwriting criterias than FHA loans. If you have a recent foreclosure, the minimum waiting period to qualify for a conventional loan is 7 years from the date the foreclosure has been transferred out of your name or the date of the sheriff sale.
If you had a deed in lieu of foreclosure and/or short sale, the waiting period is as follows:
1. 7 year waiting period if you are planning on putting down less than 10% down payment.
2. 4 year waiting period if you have at least a 10% down payment.
3. 2 year waiting period if you have 20% down payment.
Automated approval via Fannie Mae’s Automated Underwriting System
The first round in getting a conventional loan after the 2 year waiting period with 20% down after a deed in lieu of foreclosure and/or short sale is that you need an automated approval from Fannie Mae’s Automated Underwriting System. Just because you have the 20% down payment and have waited the 2 year waiting period does not automatically qualify you for a residential mortgage loan. Getting an AUS approval is the first step.
Deed In Lieu Of Foreclosure Versus Foreclosure
Many times a mortgage loan borrower will get a AUS denial because the deed in lieu of foreclosure and/or short sale was reported as a regular foreclosure and not as a deed in lieu and/or short sale. If this is the case, it is not the end of the world. It will take a little time to have the deed in lieu and/or short sale corrected on your credit report by submitting the corrected paperwork to a third party credit vendor and doing a rapid rescore. Your mortgage broker can do that for you. It normally takes a 3 to 5 business days to do a rapid rescore. Once the corrected findings is reported on your credit report, the new credit report will then be re-submitted to AUS for an automated approval.
The Automated Underwriting System will not just take into account the 2 year waiting period and your 20% down payment. The AUS will evaluate your full credit report and credit scores. It will take into account your income, debts, liabilities, and assets. It will analyze your debt to income ratio, analyze your credit tradelines, see if you had any late payments after your deed in lieu/short sale, credit inquiries, job history, payment history, payment and credit patterns, and your overall financial and credit profile.
Mortgage lender overlays on conventional loans after 2 year waiting periods
Again, just because you have waited out the 2 year waiting period and have the 20% down payment after your deed in lieu/short sale and have a AUS automated approval does not guarantee you that you will get qualified for a conventional loan with every lender. Once you get the AUS automated approval, the chances are you will get a mortgage loan approval and will close on your new home purchase but not with any lender of your choice. Most mortgage lenders do have overlays on Fannie Mae guidelines which might affect you or may not. Chances are you will be wasting your time by applying to banks or mortgage banks.
Mortgage Bankers Versus Correspondent Lenders
Mortgage bankers normally only deal with their own products and do not have any correspondent relationships with other lenders. There are mortgage bankers that do have correspondent relationships and you may try them. You can also contact several credit unions who are direct resellers of Fannie Mae loans. Your best bet is to find a mortgage broker/correspondent lender who has access to dozens of wholesale lending sources. The chances are that you might get denied by some lenders due to their ovelays even though you have an automated approval but do not let discourage you. There are tons of lenders and out of those lenders, there are lenders who do not have overlays that apply to you. It is a matter of picking and choosing the right lender. Even mortgage lenders with overlays can make an exception and look at your file and approve your loan. Getting discouraged just because of a few inital turn downs is silly because most of these loans with automated approvals get done and closed.
Examples of some lender overlays on conventional loans after 2 year waiting periods after deed in lieu and/or short sale
Many lenders will not want to approve a 20% down payment conventional loan after a two year waiting period if the homeowner just bailed on the house because they were upside down and did not have extenuating circumstances. However, most homeowners had their own reason in doing a deed in lieu and/or short sale such as a divorce, job loss, medical reasons, or loss of business. Some of the lender overlays are the following:
1. Minimum credit scores of 680 FICO.
2. Minimum 3 credit lines for at least 12 months. Some lenders will accept closed tradelines. Rental verification is counted as a strong credit tradelines if it can be documented via cancelled checks for the past 12 months or a letter from a licensed property management company.
3. No late payments after the deed in lieu of foreclosure/short sale.
4. Debt to income ratio minimums such as 40% or 45% DTI.
5. No debt settlement programs or debt reductions: This overlay is implemented by many lenders. These lenders view debt settlement and/or debt reduction payment plans the same as a bankruptcy. It is not in the Fannie Mae guidelines but it is their own silly overlay.
Many hard working American families have fallen victims to this country’s financial and credit meltdown. They have since worked hard and re-established their financial and credit profile and are ready to rebuild their lives. They have saved their hard working dollars to save up to purchase a home and now qualify after waiting the 2 year waiting period and have the 20% down payment to purchase their dream home. Although many lenders may have silly overlays that do not make sense, there are lenders with no or little overlays that will gladly approve your mortgage loan as long as you have an automated approval and you qualify under Fannie Mae guidelines. These lenders will give you a mortgage loan approval and plan to sell it right back to Fannie Mae for a yield premium. If you are in a situation where you are ready to purchase a home after you have waited the 2 year waiting period after a deed in lieu of foreclosure or short sale and have been turned down by other mortgage lenders due to their silly overlays in California, Texas, Indiana,Illinois or Florida or other states, contact me at Gustan Cho Associates at 262-716-8151 or email me at email@example.com . You are welcomed to subscribe to our daily mortgage and real estate newsletter at www.gustancho.com and I will be able to help you. If you are in other states, I cannot originate the loan for you but you are welcomed to contact me and I will guide you the right way.
2015 Update On Conventional Loan After Deed In Lieu Of Foreclosure And Short Sale
Unfortunately the 2 year waiting period to qualify for a conventional loan after a deed in lieu of foreclosure and short sale with 20% down payment is no longer available and has been terminated by Fannie Mae on August 2014. The new waiting period to qualify for a conventional loan after a deed in lieu of foreclosure and short sale is 4 years from the recorded date of the deed in lieu of foreclosure or the date of the short sale with re-established credit. The waiting period after a standard regular foreclosure to qualify for a conventional loan is 7 years from the recorded date of the foreclosure.