Qualifying For Conventional Loan After Bankruptcy

To qualify for a conventional loan after bankruptcy, there is a minimum mandatory waiting period of 4 years after the discharge date of the bankruptcy but can be as much as 7 years from the discharge date of the bankruptcy.  Why is there a four to seven year waiting period after a bankruptcy?   In order to get an approve/eligible per DU FINDINGS and/or LP FINDINGS after four years of a bankruptcy discharge, the mortgage applicant needs to be a strong borrower.  If you have re-established credit, no lates after your bankruptcy, higher down payment, reserves, and other compensating factors after your bankruptcy discharge, Fannie Mae’s and/or Freddie Mac’s Automated Underwriting System will most likely approve you for a conventional loan after a four year waiting period after a bankruptcy.  However, if you have lower credit scores, little to no reserves, a few late payments after your bankruptcy, and no compensating factors, then the chances are that you will not get an approve/eligible per DU or LP FINDINGS until 7 years after your bankruptcy discharge.  It is extremely important that you re-establish your credit and make sure you do not have any late payments after your bankruptcy discharge.

Basics Of Conventional Loans

There are times where a home buyer needs to go with a conventional loan program than a FHA insured mortgage loan.  FHA has much leanier mortgage lending guidelines than conventional loan programs.  For example, the waiting period to qualify for a FHA insured mortgage loan after a bankruptcy is two years from the bankruptcy discharge date whereas to qualify for a conventional loan, the waiting period is between 4 to 7 years.  Whether it is 4 years, 5 years, 6 years, or 7 years to qualify for a conventional loan after bankruptcy is determined by the Automated Underwriting System.  The Automated Underwriting System will determine how strong a conventional mortgage loan applicant is and determined the waiting period guidelines for a conventional loan after bankruptcy.  The Automated Underwriting System will analyze the borrower to see if he or she has re-established credit, whether they have any lates after the bankruptcy discharge, their credit ratios, overall credit history, income, reserves, and other credit and asset factors.

Qualifying For FHA Loans

To qualify for a 3.5% down payment purchase FHA insured mortgage loan, the mortgage applicant needs a 580 FICO score.  To qualify for a 5% down payment home purchase conventional loan, the mortgage loan applicant needs a minimum of a 620 FICO credit score.  If a home buyer is set on purchasing a condominium that is not FHA approved, then the home buyer needs to go through the conventional mortgage loan route and needs to qualify for a conventional loan.  Also, there are now new 2014 FHA mortgage lending limits that is now in effect.  In most counties throughout the country, FHA now set the maximum loan limits in 2014 at $271,000 unless the property is located in a high cost county area.  The old FHA maximum loan limit was at $410,000.  Conventional loan limits is at $417,000 unless the property is located in a high cost county area where it is greater than the $417,000.  For those home buyers who need a mortgage loan greater $271,000 and up to $417,000, then the home buyer needs to go through the conventional mortgage loan route.

In most cases, you can go up to a 45% debt to income ratio on conventional loans.

Second Homes, Vacation Homes, Investment Homes

If you are a home buyer of second homes, vacation homes, or investment homes, conventional loans is the only way to go.  FHA insured mortgage loans are only for owner occupied primary residential homes.  To qualify for a vacation or second home, a minimum of a 10% down payment is required.  For investment homes, a minimum of 15% down payment is required.  20% to 25% down payment is required if the potential rental income needs to be used to qualify for the mortgage loan applicant’s debt to income ratios.  75% of the market rent will be used as income for those investment home buyers who need to use the potential rental income in order to qualify for the investment home mortgage loan.

Gustan Cho

www.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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