Fannie Mae Bankruptcy Guidelines For Conventional Loans
This Article Is About Fannie Mae Bankruptcy Guidelines For Conventional Loans Fannie Mae Bankruptcy Guidelines state the waiting period to qualify for a Conventional Loan after Bankruptcy. Conventional loans are often referred to as conforming loans because they need to conform to Fannie Mae and Freddie Mac Guidelines. Fannie Mae Bankruptcy Guidelines will also explain the mandatory waiting period in qualifying for a Conventional Loan if you have a mortgage or mortgage as part of your Chapter 7 Bankruptcy.
The waiting period start date:
- Is it the discharged date of the bankruptcy?
- Is it the recorded date of the foreclosure and/or short sale?
- Does the deed need to be recorded if you have your mortgage part of your Chapter 7 Bankruptcy to qualify for a Conventional Loan?
Many of your questions on the Fannie Mae Bankruptcy Guidelines will be explained in this BLOG.
In this article, we will discuss and cover Fannie Mae Bankruptcy Guidelines For Conventional Loans.
Government Loans Mortgage Guidelines
Government Loans are residential mortgage loans that are originated by banks and private mortgage lenders and are for owner-occupied properties. Borrowers cannot have government loans for second homes and investment properties.
Why do they call it government loans? The reason it is referred to as government loans or Govies is that these home loans are insured by government entities in the event if the borrower defaults and forecloses. As long as the bank or lender follows the particular government entity mortgage guidelines and the borrower defaults and the home loan goes into foreclosure, then the government entity will insure the private lender who has originated and funded the government loan. Also, in order for the bank and/or private lender to be able to re-sell these loans to the secondary market as a government loan, then the bank and/or lender needs to abide by the particular government agency. In order for the government agency to insure loans, it needs to meet agency guidelines.
Here are the following government loans:
- FHA Loans
- VA Loans
- USDA Loans
FHA Insured Mortgage Loans
Let’s take an example of an FHA Loan. FHA requires a borrower to have a 580 FICO Credit Score to qualify for a 3.5% down payment FHA Loan.
Here are other FHA Guidelines that borrowers need to meet in order to qualify for FHA Loans:
- Debt to income ratio of 43% DTI for borrowers with credit scores under 620 FICO Credit Scores
- Debt to income ratio of 56.9% DTI for borrowers with credit scores of over 620 FICO; Front End debt to income ratios are capped at 46.9%
- Outstanding collection accounts and charge off accounts do not have to be paid
- No credit disputes are allowed if the borrower outstanding non-medical unpaid collection accounts that total or are greater than $1,000
- Medical collection disputes are exempt
- Two year waiting period from the discharged date of Chapter 7 Bankruptcy to qualify for FHA Loan
- Three year waiting period after foreclosure, deed in lieu of foreclosure to qualify for FHA Loan
- However, the waiting period start date is from the recorded date of the foreclosure and/or deed in lieu of foreclosure
- Three year waiting period from the date of foreclosure to qualify for FHA Loan
Approve/Eligible Per Automated Underwriting System
If the borrower meets all of the above criteria and gets an approve/eligible per Automated Underwriting System, then the FHA Loan is insurable and can be sold to Fannie Mae/Freddie Mac after the lender funds the loan with their warehouse line of credit. After the FHA Loan gets sold to the secondary market, the funds from the sale are replenished and the lender’s warehouse of credit is paid off and can be reused to fund other FHA Loans. This process is repeated over and over and this is how mortgage lenders make money.
If the lender makes a mistake and funds an FHA Loan and made a mistake on guidelines such as the Chapter 7 Bankruptcy discharge date was not two years old, then the loan is not insurable. It is not salable and the lender needs to keep it in the house.
Freddie Mac And Fannie Mae Bankruptcy Guidelines
Fannie Mae and Freddie Mac are the two mortgage giants in the United States where they set the standards and requirements on Conventional Loans. Conventional Loans are not government loans. Why do mortgage lenders require that borrowers conform to Fannie Mae and/or Freddie Mac Standards if Conventional Loans are not government loans? The reason being is in order for banks and mortgage lenders to be able to re-sell Conventional Loans to Fannie Mae and Freddie Mae, the conventional loan they fund need to conform to Fannie Mae or Freddie Mac Standards.
Fannie Mae Bankruptcy Guidelines On Conforming Loans
Here are the basic Conforming Loan Requirements:
- Owner occupant properties, Second Homes, and Investment Properties
- One to Four Unit Residential Properties
- Minimum Credit Scores of 620 FICO
- 3% down payment for first time home buyers on owner occupant properties:
- First time home buyers are defined as homebuyers who have not had any ownership of a property for the past 3 years
- 5% down payment for seasoned owner occupant home buyer
- Up to 3% sellers concessions allowed for owner occupant and second homes by home sellers
- 2% sellers concessions allowed on investment properties
- Four year waiting period after Chapter 7 Bankruptcy to qualify for a Conventional Loan
- The seven-year waiting period to qualify for a Conventional Loan after a standard foreclosure and the waiting period start date is the recorded date of the foreclosure
- The 4-year waiting period to qualify for a Conventional Loan after the recorded date of a deed in lieu of foreclosure
- 4 year waiting period after the short sale date to qualify for a conventional loan
- 4 year waiting period from the discharged date of the Chapter 7 Bankruptcy if the mortgage was included as part of the Chapter 7 Bankruptcy
- However, the deed needs to be out of the homeowner’s name
As long as the deed is out of the borrower’s name, you are good no matter how much later that the recorded date was after the discharged date of the Chapter 7 Bankruptcy.
Qualifying For Mortgage After Chapter 7 Bankruptcy
There are so many folks who have a mortgage or mortgages as part of their Chapter 7 Bankruptcy but the lender has not taken the deed out of their name where it affects them from purchasing a home. Here are the main bullet points on the Fannie Mae Bankruptcy Guidelines when it comes to having your mortgage as part of your Chapter 7 Bankruptcy:
- This only applies to Conventional Loans when you have a mortgage or mortgages as part of your Chapter 7 Bankruptcy
- All of your mortgages needs to have been discharged and included in your Chapter 7 Bankruptcy discharge
- Mortgage cannot be reaffirmed
- The four-year waiting period from the discharged date of your Chapter 7 Bankruptcy discharged date
- The foreclosure and/or short sale has no waiting period like government loans as the DEED has been transferred out of your name
- The deed NEEDS to have been transferred out of your name in order for the Fannie Mae Bankruptcy Guidelines On Mortgage Part Of Bankruptcy rule to apply for you in qualifying for a Conventional Loan
If you have a mortgage part of your Chapter 7 Bankruptcy and you have passed the four-year waiting period mark, contact me at 262-716-8151 or text us for a faster response. Or email us at [email protected] We can help you get an approve/eligible per Automated Underwriting System and help you get a Conventional Loan as long as you get an AUS automated approval. I am available 7 days a week, evenings, weekends, and holidays.