Conventional Loan After Bankruptcy And Housing Events
This BLOG On Qualifying For Conventional Loan After Bankruptcy And Housing Events Was UPDATED On May 7th, 2019
There are new waiting period requirements to qualify for a conventional loan after bankruptcy and housing events. Housing events are defined as a deed in lieu, short sale, foreclosure. Fannie Mae and Freddie Mac implemented and launched new Conventional Loan After Bankruptcy and Housing Events Mortgage Guidelines:
- The old waiting period in qualifying for a conventional loan after a deed in lieu of foreclosure or short sale was a 2 year waiting period with a minimum of 20% down payment on a home purchase
- Or 80% loan to value on a refinance conventional mortgages
- The 2 year waiting period after a deed in lieu of foreclosure and/or short sale is no longer in effect
- No matter how much down payment borrowers have or loan to value is
- The new waiting period Fannie Mae guidelines to qualify for a conventional loan after a deed in lieu of foreclosure or short sale is 4 years after the recorded date of the deed in lieu of foreclosure
- Or 4 years after the date of the short sale which is reflected on HUD’s settlement statement
Waiting Period After Foreclosure To Qualify For Conventional Loan
Unfortunately, unlike FHA, Fannie Mae treats a foreclosure differently than a deed in lieu of foreclosure or short sale.
- Fannie Mae guidelines on qualifying for a conventional loan after a regular standard foreclosure is 7 years
- The waiting period starts from the date of the recorded date of the foreclosure
- This date is reflected on the public records, the county’s recorder of deeds office
- With FHA loans, the waiting period after a foreclosure is the same as the waiting period of a deed in lieu of foreclosure
- There is a three year waiting period from the recorded date of the foreclosure or deed in lieu of foreclosure
- FHA treats deed in lieu of foreclosure the same as a standard foreclosure
- The waiting period is 3 years for short sales for FHA Loans
- The three year waiting period after the short sale starts from the date of the short sale which is reflected in the HUD’s Settlement Statement
- FHA has a two year waiting period after Chapter 7 bankruptcy to qualify for FHA Loans
- The waiting period time clock starts on the discharged date of Chapter 7 Bankruptcy
Waiting Period After Bankruptcy To Qualify For Conventional Loan
The waiting period to qualify for a conventional loan after bankruptcy is four years from the discharged date with Chapter 7.
- This waiting period has not changed
- Still remains at the 4 years from the discharge date of Chapter 7 bankruptcy
- There is a two year waiting period after Chapter 13 Bankruptcy discharged date to qualify for conforming loans
- There is a four year waiting period after Chapter 13 Bankruptcy dismissal date to qualify for conventional loans
Fannie Mae Guidelines On Mortgage Part Of Bankruptcy
The great news for many potential home buyers is that New Fannie Mae Guidelines effective immediately will consider new waiting period guidelines with mortgage part of Chapter 7 bankruptcy.
- The waiting period for housing events where the person had mortgage part of Chapter 7 bankruptcy starts from the discharge date of Chapter 7
- Petitioner cannot have reaffirmed the mortgage
- The housing event needs to have been finalized either by foreclosure, deed in lieu of foreclosure, short sale
- Prior to this new guideline, the waiting period for a person who had a mortgage part of Chapter 7 bankruptcy did not start until the recorded date of housing event after the discharged date
- There are thousands of folks who had mortgage part of Chapter 7 bankruptcy
- Many were still in limbo because the waiting period time clock did not start yet because the housing event was not finalized
- I know of a case where one of my potential home buyers had mortgage part of their bankruptcy four years ago
- Their waiting period did not even start yet
- This is because the deed is still in the homeowners’ name and has not changed out of their names
Down Payment And Credit Guidelines On Conforming Loans
The great news with Fannie Mae’s new mortgage guidelines with regards to the four year waiting period after bankruptcy, deed in lieu of foreclosure, and a short sale is that only a 5% down payment is required.
- With the old waiting period of 2 years after a deed in lieu of foreclosure and/or short sale with conventional loans, a 20% down payment was required
- The bad news of the elimination of the 2 year waiting period after a deed in lieu of foreclosure and short sale with 20% down payment got offset by the 5% down payment requirement and the elimination of the 20% down payment
Since the new 4 year waiting period after a deed in lieu of foreclosure, and/or short sale to qualify for a conventional loan needs to meet Fannie Mae Guidelines, credit scores will dictate the mortgage rates. The prior bankruptcy, deed in lieu of foreclosure, or short sale will have no impact on mortgage rates.
Mortgage Lender Overlays
Most conventional loans I originate and close after bankruptcy, deed in lieu, short sale are borrowers who have gone to their local banks, credit unions, and other mortgage lenders and were turned down. This is the case even though they qualify and meet Fannie Mae’s Guidelines on conventional loan after bankruptcy, deed in lieu, short sale.
- Many bankers, credit unions and other lenders refer their borrowers my way because their financial institution has lender overlays
- Why can I do these type of mortgage loans and others can’t?
- The reason is that other banks, credit unions, and mortgage lenders have overlays on these types of conventional mortgage programs
- Overlays are additional guidelines imposed by the individual lenders that surpass the minimum lending guidelines set by Fannie Mae
- I only go off the minimum Fannie Mae Guidelines
- We do not have any overlays
- We just go off Fannie Mae’s Automated Underwriting System’s automated findings
- Borrowers who get an approve/eligible per DU FINDINGS, your loan will get closed