Updated 2016 Fannie Mae Collection Accounts Guidelines

Fannie Mae Collection Accounts Guidelines For Conventional Loans

Fannie Mae is in charge of setting up mortgage rules and guidelines for Conventional Loans. HUD, the United States Department of Housing and Urban Development which is the parent of the Federal Housing Administration or FHA, is in charge of setting up the mortgage requirements and guidelines for FHA Loans. Every mortgage loan program has mortgage lending guidelines on collection accounts and how a borrower will qualify for a home loan with outstanding collection accounts, past due credit accounts, and charge off accounts. 2016 Fannie Mae Collection Accounts Guidelines differs than those of FHA Guidelines On Collection Accounts . 2016 Fannie Mae Collection Accounts Guidelines are more strict on the qualification requirements for Conventional Loans Versus FHA Loans .

Fannie Mae Collection Accounts Guidelines: Conventional Loan Requirements

To qualify for Conventional Loans, borrowers need to follow the standards and lending guidelines set by the two mortgage giants, Fannie Mae and Freddie Mac. Conventional Loans are called Conforming Loans because they need to conform to the mortgage lending standards of Fannie Mae and/or Freddie Mac. Minimum credit scores required to qualify for Conventional Loans are 620 credit scores. There is a four year mandatory waiting period to qualify for a Conventional Loan after a Chapter 7 Bankruptcy discharged date. There is a two year mandatory waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy discharged date. There is a four year waiting period to qualify for a Conventional Loan after a deed in lieu of foreclosure and/or short sale. There is a seven year mandatory waiting period to qualify for a Conventional Loan after a foreclosure. For deeds in lieu of foreclosure and foreclosure, the waiting period time clock starts from the recorded date of the deed in lieu and/or foreclosure and not the date when the keys were turned in to the bank or mortgage lender.

Fannie Mae Collection Accounts Guidelines: Credit Payment History On Credit Report

Just because a mortgage loan borrower has a minimum credit score of 620 credit scores does not mean that the borrower will qualify for a Conventional Loan. Conventional mortgage lenders will also look at the borrower’s credit report and look for timely payment history, especially for the past 12 months. Most mortgage lenders will not approve borrowers who had any late payment history after a bankruptcy or foreclosure. Those who have late payments that are not in collections, all of the late payments needs to be current in order for them to qualify for a Conventional Loan. For example, if the borrower has a creditor who he or she has not paid for the past six months and that account is not in collections, that mortgage borrower needs to get all of the past due payments current in order to qualify for a Conventional Loan.

Fannie Mae Collection Accounts Guidelines: Do I Need To Pay Off Outstanding Collection Accounts To Qualify For Conventional Loan?

Conventional mortgage borrowers do not have to pay off any outstanding collection accounts and/or charge off accounts if they are purchasing a one unit primary owner occupant home regardless of the outstanding collection account balance and/or charge off account balance.

Conventional mortgage borrowers who are purchasing two to four unit owner occupied primary residential properties and/or second home properties must pay off any outstanding collection accounts and/or charge off accounts if the outstanding balance is $5,000 or greater at or prior to closing of their home.

Conventional mortgage borrowers who are purchasing investment properties must pay off individual collection accounts and/or charge off accounts that is equal or greater than $250 and collection accounts that total more than $1,000. This needs to be paid off at or prior to closing of their home loan.

Fannie Mae Collection Accounts Guidelines: Bad Credit And Conventional Loans

Conventional Loans have higher credit and lending standards than FHA Loans. The maximum debt to income ratio requirements on Conventional Loans is capped at 45% DTI whereas with FHA Loans, the debt to income ratios can go up as high as 56.9% DTI.  Minimum credit scores to qualify for FHA Loans is 580 credit scores for a 3.5% down payment home purchase home loan. However, you need a minimum credit score of 620 FICO credit scores to qualify for Conventional Loans. Waiting period to qualify for FHA Loans after Chapter 7 Bankruptcy is 2 year waiting period after the Chapter 7 Bankruptcy discharged date whereas there is a four year mandatory waiting period to qualify for a Conventional Loan after a Chapter 7 Bankruptcy discharged date. There is no mandatory waiting period to qualify for a FHA Loan after a Chapter 13 Bankruptcy discharged date whereas there is a two year mandatory waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy discharged date. There is a three year waiting period to qualify for a FHA Loan after a foreclosure, deed in lieu of foreclosure and short sale. With Conventional Loans, there is a four year mandatory waiting period to qualify for a Conventional Loan after a deed in lieu of foreclosure or short sale and a 7 year mandatory waiting period to qualify for a Conventional Loan after the recorded date or sheriff’s sale date of a foreclosure.

Most mortgage lenders do not want to see any late payments or derogatory credit after a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale. They want to see re-established credit and no late payments. However, there are extenuating circumstances and late payments and derogatory credit can happen so this will not be a deal killer but a good letter of explanation will be required.

Fannie Mae Collection Accounts Guidelines: Mortgage Part Of Bankruptcy

If you had a mortgage part of your Chapter 7 Bankruptcy there is a four year waiting period from the discharged date of your Chapter 7 Bankruptcy and the date of the final sheriff’s sale or foreclosure does not matter. However, the foreclosure needs to have been finalized and the waiting period will be four years from the Chapter 7 Bankruptcy discharged date, although the final foreclosure date can be at a later date. If you are looking for a Conventional Mortgage Lender who has no lender overlays, please contact me at 262-716-8151 or email me at gcho@gustancho.com.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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