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Buying A House After Bankruptcy And Foreclosure Guidelines

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Buying A House After Bankruptcy And Foreclosure Guidelines

This BLOG On Buying A House After Bankruptcy And Foreclosure Guidelines Was UPDATED On October 12th, 2018

Tips On Buying A House After Bankruptcy And Foreclosure

The whole mortgage industry went through a major overhaul after the 2008 Real Estate and Mortgage Meltdown .

  • The NMLS was created after the implementation of the SAFE ACT and New Banking Regulations
  • The Dodd Frank Act was passed and the mortgage industry would never be the same again and would become the most regulated industry in the United States
  • All mortgage loan originators had to undergo licensing requirements set by the NMLS
  • Loan Officer had to take a 20 hour pre-licensing course
  • They also had to go through an intensive criminal background check in both the federal and state level
  • Mortgage loan originators also had to go through a financial background investigation which consisted of a credit check

Sweeping Changes In Mortgage Regulations After Great Recession

Mortgage regulators reviewed each mortgage loan originator candidate’s credit report and looked for derogatory credit items:

  • Each mortgage loan originator applicant had to explain the nature and reason of their derogatory information on their credit report
  • Mortgage regulators would deny loan originator’s license for those MLO applicant’s who had bad credit
  • This was because they deemed them to be financially irresponsible
  • Regulators labeled loan officer candidates with bad credit they would not be fit to represent the public as mortgage loan officers
  • This was because they could not manage their own finances
  • Unfortunately, many talented mortgage loan officers who went through a tough time financially due to the Great Recession of 2008 were denied mortgage loan originator’s licenses
  • Many were forced out of the mortgage industry

How The Great Recession Impacted Home Ownership

The Great Recession of 2008 was more like the Second Great Depression of 2008

  • This is because never in history has there been so many Americans who filed bankruptcy and had gone through a foreclosure
  • The real estate market literally TANKED
  • Millions of hard working Americans lost their businesses and have lost their jobs that they have held for decades
  • Millions of those who retired were forced out of retirement and were forced to seek employment again just to make ends meet
  • Millions of homeowners who counted on the hard earned equity they built in their homes have seen their home value diminish
  • A large percentage of homeowners had loan balances that were much higher than the value of their homes
  • If you are thing of buying a house after bankruptcy and foreclosure, you are not alone
  • There are countless of hard working folks in this country who went through a bankruptcy and/or foreclosure who have re-established themselves
  • They are now thinking of buying a house after bankruptcy and foreclosure.

How To Go About Buying A House After Bankruptcy And Foreclosure

Many people still have concerns that buying a house after bankruptcy and foreclosure will hinder their chances of getting a mortgage loan.

  • This is absolutely not the case
  • People who have lost their homes on a prior foreclosure or had to file bankruptcy can now qualify to purchase a home
  • However, there are mandatory waiting period requirements in buying a house after bankruptcy and foreclosure
  • If you have gone through a prior bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale, I will explain on this blog on how to go about buying a house after bankruptcy and foreclosure

Qualifying For Mortgage After Bankruptcy And Foreclosure

There are two types of Bankruptcies consumers file.

  • A Chapter 7 Bankruptcy is also commonly known as total liquidation bankruptcies
  • Chapter 7 Bankruptcy is where consumers with little or no assets choose and have either no income or limited disposable income to be able to pay their creditors
  • Consumers filing for Chapter 7 Bankruptcy does not have to liquidate all of their assets
  • The Bankruptcy Courts will let you keep your home, car, and personal assets under a certain value
  • However, if you have a lot of assets and equity on investment properties or other assets of value, those assets will get liquidated by Bankruptcy Trustee in order to pay off your creditors
  • Consumers who have assets and income and want to protect those assets and need time to restructure their debts over the course of five years, a Chapter 13 Bankruptcy is the route to go

How Does Chapter 13 Bankruptcy Work

The way a Chapter 13 Bankruptcy works is that Bankruptcy Trustee will be appointed by the Bankruptcy Court:

  • The Trustee will take a portion of petitioners income
  • Proceeds will be used to pay your creditors over a course of five years
  • Once repayment period has been satisfied, which is normally five years, the balance of the remaining debts owed to creditors will be discharged
  • Bankruptcy discharge means the remaining debts will be wiped off
  • Consumer no longer owe any creditors and are now debt free

A Bankruptcy Discharge means consumers no longer is obligated to pay any creditors and are debt free.

  • It takes normally 3 months to get a Chapter 7 Bankruptcy discharged
  • On a Chapter 13 Bankruptcy, the Chapter 13 Bankruptcy is discharged once the repayment period has been completed which is normally five years

Buying A House After Bankruptcy And Foreclosure And Qualifying For Home Loan After Bankruptcy

There are mandatory waiting period to qualify for a mortgage loan after bankruptcy.

  • FHA Loans, VA Loans, and USDA Loans require a mandatory waiting period after Chapter 7 Bankruptcy of two years from the discharged date of the Chapter 7 Bankruptcy
  • Fannie Mae and Freddie Mac, the two mortgage giants who sets mortgage lending standards for Conventional Loans, require a four year mandatory waiting period for borrowers
  • Waiting period is 4 year to qualify for a Conventional Loan after a Chapter 7 Bankruptcy discharged date
  • There are no waiting period to qualify for a FHA Loan, VA Loan, USDA Loan after a Chapter 13 Bankruptcy discharged date
  • However, Fannie Mae and Freddie Mac does require a two year mandatory waiting period after a Chapter 13 Bankruptcy discharged date to qualify for a Conventional Loan
  • There is a four year waiting period after Chapter 13 dismissal date

Lending Guidelines With Prior Mortgage Included In Bankruptcy

If you had a mortgage part of bankruptcy , you can qualify for a Conventional Loan four years after the discharged date of your Chapter 7 Bankruptcy:

  • This holds true even though the foreclosure and/or housing event was recorded after the Chapter 7 Bankruptcy discharged date
  • The actual recorded date of foreclosure and/or housing event does not matter with prior mortgage part of Chapter 7 Bankruptcy for qualifying on Conventional Loans
  • However, with FHA Loans, if you had mortgage part of Chapter 7 Bankruptcy, there is a three year waiting period to qualify from the recorded date of foreclosure
  • This is a much later date than the discharged date of Chapter 7 Bankruptcy
  • Many lenders are not in a major hurry to transfer the name of the homeowner into their names
  • So many times, it may be years before a home buyer can qualify for a FHA Loan
  • This is because the waiting period time clock does not start until the homeowners name has been transferred out of their name and recorded in the county’s recorder of deeds office

Buying A House After Bankruptcy And Foreclosure And Mortgage After Foreclosure

Home buyers can purchase a home after foreclosure:

  • This holds true as long as they meet the minimum waiting period after foreclosure
  • Waiting periods after foreclosure differs on loan program
  • FHA mandates a three year minimum waiting period after foreclosure, deed in lieu of foreclosure, and short sale
  • The waiting period clock of three years starts from the recorded date of the foreclosure and deed in lieu of foreclosure or the date of the sheriff’s sale
  • The three year waiting period after a short sale begins from the date of the short sale which is reflected on the HUD Settlement Statement of the short sale home
  • Fannie Mae and Freddie Mac require a seven year waiting period after foreclosure to qualify for a Conventional Loan
  • Again, the 7 year waiting period clock starts from the date that the deed of the property has been transferred out of the homeowners name into the name of lender
  • Or out of the homeowners name into the name of someone else or the date of the sheriff’s sale
  • Fannie Mae and Freddie Mac requires a four year mandatory waiting period after a deed in lieu of foreclosure or short sale to qualify for a Conventional Loan

VA Mortgage Guidelines

The Department of Veteran Affairs, VA, requires a two year mandatory waiting period after foreclosure and/or deed in lieu of foreclosure, and/or short sale for a Veteran to qualify for a VA Loan.

  • USDA requires a three year mandatory waiting period after foreclosure, deed in lieu of foreclosure, and short sale for a USDA home buyer to qualify for a USDA mortgage loan

Home buyers thinking of buying a house after bankruptcy and foreclosure and need a direct lender who has no overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. We are good in most of the 50 states to do business and are available 7 days a week, evenings, weekends, and holidays to take your calls and answer any questions you may have.

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