Guidelines On Conventional Loan After Bankruptcy Requirements

Conventional Loan After Bankruptcy Requirements

There are lending guidelines in qualifying for conventional loan after bankruptcy requirements that home buyers need to meet. Fannie Mae and Freddie Mac are the two mortgage giants that set conventional lending guidelines for conventional loans. To qualify for a conventional loan after a Chapter 7 Bankruptcy, the mortgage loan borrower needs to pass a mandatory four year waiting period after the Chapter 7 Bankruptcy discharge date. To qualify for a conventional loan after a Chapter 13 Bankruptcy discharge, the mortgage loan borrower needs to pass a mandatory two year waiting period after the discharged date of the Chapter 13 Bankruptcy. Besides the mandatory waiting period after a bankruptcy, there are other rules and standards the mortgage loan borrower needs to meet in qualifying for a conventional loan after bankruptcy. Minimum credit score requirements to qualify for a conventional loan is 620 FICO credit scores. Mortgage lenders do not want to see any late payments by mortgage loan borrowers after their bankruptcy discharge date. This is for both Chapter 7 Bankruptcy and Chapter 13 Bankruptcy.

Conventional Loan After Bankruptcy Requirements: Does A Prior Bankruptcy Affect Conventional Mortgage Rates?

The way Conventional Loans work is different than FHA Loans. Credit Scores have a huge impact on mortgage interest rates on Conventional Loans unlike with FHA Loans. FHA Loans are insured by the Federal Housing Administration against borrower’s default and if the mortgage loan borrower defaults on FHA Loans, FHA will insure the FHA Approved Mortgage Lender if the property goes into foreclosure. Due to the FHA mortgage insurance, FHA mortgage rates are much lower than Conventional mortgage interest rates. With FHA Loans, as long as the mortgage loan borrower has a credit score of 640 FICO or higher, the borrower will most likely get the best FHA mortgage interest rates. The down payment has no impact on FHA mortgage interest rates. However, with Conventional Loans, it is different. Factors that affect Conventional mortgage interest rates are the borrowers credit scores and the amount of down payment the conventional mortgage loan borrower puts down on the home. A prime borrower with Conventional Loans is considered a Conventional Mortgage Loan Borrower who has a 740 FICO credit score or higher and a borrower who puts a 20% down payment on a home purchase or a homeowner who has at least a 80% loan to value on a refinance mortgage loan. Fannie Mae and Freddie Mac are the two institutions that set standards and mortgage lending guidelines on Conventional Loans.  Conventional Loans are not guaranteed against borrower’s default by Fannie Mae or Freddie Mac like FHA Loans are insured with FHA against mortgage loan borrower’s default.  FHA requires the FHA mortgage loan borrower to have FHA mortgage insurance premium throughout the life of their FHA Loan, no matter what the loan to value is. With Conventional Loans, private mortgage insurance is not required for homeowners who have at least a 80% loan to value, however, it is required for homeowners who have less than 20% equity in their homes.

A prior bankruptcy has no impact on conventional mortgage interest rates.  If you compare one borrower, Borrower A,  with a 740 FICO credit score and 20% down payment and another conventional mortgage loan borrower , Borrower B, who has the exact 740 FICO credit score as well as a 20% down payment but Borrower B has a prior bankruptcy, both of these borrowers will get the same conventional mortgage interest rates and the borrower with the prior bankruptcy will not get penalized due to their prior bankruptcy.

Conventional Loan After Bankruptcy Requirements: Mortgage Part Of Bankruptcy

If a person had a mortgage part of their Chapter 7 Bankruptcy, the mandatory waiting period to qualify for a conventional loan is four years from the date of the Chapter 7 Bankruptcy discharge date, even though the foreclosure is not recorded after the discharge date of their Chapter 7 Bankruptcy. The foreclosure can be recorded at a much later date than the Bankruptcy discharge date and that will not matter. Under Fannie Mae and Freddie Mac conventional mortgage lending guidelines, the waiting period starts from the discharge date of the Chapter 7 Bankruptcy.

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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