Conforming Mortgage Credit Guidelines For Home Buyers

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Conforming Mortgage Credit Guidelines For Home Buyers

This BLOG On Conforming Mortgage Credit Guidelines For Home Buyers Was UPDATED On August 5th, 2018

Conforming Mortgage Credit Guidelines For Home Buyers After Deed In Lieu And Short Sale

Conforming Mortgage Credit Guidelines For Home Buyers After Deed In Lieu And Short Sale requires a 4 year mandatory waiting period after the deed in lieu of foreclosure and/or short sale.

  • A deed in lieu of foreclosure is an alternative to foreclosure where the lender will accept a homeowner to voluntarily turn in his or her keys and deed to the property in lieu of pursuing foreclosure proceedings
  • Foreclosure rates have never been as high in U.S. history like it has been during the 2008 Great Real Estate Meltdown
  • Hundreds of thousands of homeowners lost their homes through bankruptcy and foreclosure
  • Thousands of homeowners had loan balances that were higher than the value of their homes
  • Homeowners could not sell their properties
  • Homeowners turned to their lenders for loan modifications and alternatives to foreclosures
  • Two option lenders often offered to homeowners who were facing foreclosure were doing a deed in lieu of foreclosure or short sale
  • Now, those who had a deed in lieu of foreclosure or short sale can qualify for a conventional loan after meeting the mandatory waiting period after deed in lieu of foreclosure and/or short sale

Conforming Mortgage Credit Guidelines With Waiting Period After Deed In Lieu And Short Sale

There is a four year mandatory waiting period to qualify for a conventional loan after a homeowner had a deed in lieu of foreclosure.

  • However, the waiting period start clock does not begin until the deed of the property has been transferred out of the homeowners name into the name of the lender or someone else
  • Many folks think that the four year waiting period start period begins when they surrender the keys and the property to the lender
  • However, this is not the case
  • Many times, the deed does not get transferred out of the homeowners name into the name of the lender until years after the homeowner turned in their keys
  • This definitely hurts the home buyer because the mandatory waiting period start clock did not begin
  • I have seen my share of cases where home buyers have called me to inquire about getting a mortgage and thought that they had their deed in lieu of foreclosure finalized years ago
  • But the deed were still in their names
  • On case scenarios like this, the four year waiting period did not even start yet
  • Minimum down payment requirement to qualify for a conventional loan after a deed in lieu of foreclosure is 5% down payment

There is a mandatory four year waiting period to qualify for a conventional loan after a short sale per Conforming Mortgage Credit Guidelines:

  • The waiting period start clock starts from the date of the short sale which is reflected on the HUD’s Settlement Statement
  • Minimum down payment requirements to qualify for a conventional loans after a short sale is 5% down payment

The old Fannie Mae Conforming Mortgage Credit Guidelines in qualifying for a conventional loan after a deed in lieu of foreclosure and/or short sale was a two year waiting period after a deed in lieu and/or short sale with 20% down payment. Unfortunately, Fannie Mae has discontinued the 2 year waiting period after deed in lieu and/or short sale conventional loan program back in 2014.

Conforming Mortgage Credit Guidelines After Bankruptcy And Foreclosure

There is a mandatory 7 year waiting period after foreclosure to qualify for a conventional loan.

  • The seven year waiting period after standard foreclosure
  • The start clock begins on the date of the sheriff’s sale
  • Or the date that the deed was transferred out of the homeowners name into the name of the lender
  • It needs to be recorded on public records
  • It is not the date that the homeowners turned in the keys or vacated the home but the actual recorded date 

There is a four year mandatory waiting period to qualify for a conventional loan after a Chapter 7 Bankruptcy. The waiting period clock starts from the discharge date of the Chapter 7 Bankruptcy.

There is a two year waiting period after a Chapter 13 Bankruptcy discharge. The waiting period start clock starts from the discharge date of the Chapter 13 Bankruptcy. There is a four year wait period to qualify for conforming mortgages after Chapter 13 dismissal date.

Conforming Mortgage Credit Guidelines On Student Loans

Borrowers with high student loan balances may need to go with conventional loans versus FHA Loans. Income Based Repayments (IBR) is permitted with conforming loans. With FHA and USDA, lenders will take 1.0% of the outstanding student loan balance and use that figure as the monthly hypothetical student loan debt. However, no matter how large the student loan debt is, Income Based Repayment (IBR) is allowed with conventional loans as long as it reports to all three credit bureaus. USDA has the same mortgage guidelines on student loans as FHA Home Loans.  VA Loans is the only mortgage loan program that accepts deferred student loans that is deferred for longer than 12 months.

The way how VA works is the following:

  • Mortgage underwriters need to take 5.0% of the outstanding student loan balance and divide it by 12 months
  • The resulting figure is the monthly hypothetical payment used to calculate debt to income ratios on outstanding student loans on VA Mortgages

Conforming Mortgage Credit Guidelines With Prior Mortgage Included In Bankruptcy

Borrowers with a prior mortgage part of bankruptcy , there is a four year waiting period to qualify for a conventional loan. The waiting period start clock starts from the discharged date of the Chapter 7 Bankruptcy. The foreclosure and/or housing event can happen at a later date. The housing event needs to be finalized. Borrowers cannot have reaffirmed the mortgage after the bankruptcy.

Borrowers with mortgage included in Chapter 7 Bankruptcy, the waiting period to qualify for a FHA Loan is different than those of qualifying for a conventional loan.

  • With FHA, borrowers who had a mortgage, or mortgages, included in Chapter 7 Bankruptcy, the waiting period time clock does not start until the date of the sheriff’s sale or the date that the foreclosure was transferred out of their name
  • Needs to be transferred into the name of the lender or some other home buyer
  • This date will be later than the discharge date of the Chapter 7 Bankruptcy.

Borrowers with mortgage included in Chapter 7 Bankruptcy and four years has passed since the date of Chapter 7 Bankruptcy discharge date and need to qualify for a conventional loan, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Borrowers can also email us at gcho@gustancho.com. We are available 7 days a week to answer all of your questions, including evenings, weekends, and holidays.

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