Qualifying For Conventional Loan After Chapter 7 Bankruptcy

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Qualifying For Conventional Loan After Chapter 7 Bankruptcy

This BLOG On Qualifying For Conventional Loan After Chapter 7 Bankruptcy Was UPDATED On September 23nd, 2018

Qualifying For Conventional Loan After Chapter 7 Bankruptcy

To qualify for a conventional loan after Chapter 7 bankruptcy, there is a minimum mandatory waiting period of 4 years after the discharge date of the bankruptcy.

  • Why is there a four 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
  • Borrowers who have the following
    • Re-established credit
    • No late payments after Chapter 7 bankruptcy
    • Higher down payment on home purchase
    • Reserves
    • Other compensating factors after bankruptcy discharge

With the above Fannie Mae’s and/or Freddie Mac’s Automated Underwriting System will most likely approve borrowers for a conventional loan after Chapter 7 bankruptcy with a four year waiting period

  • However, if borrowers have the following:
    • Lower credit scores
    • Little to no reserves
    • Late payments after bankruptcy
    • No compensating factors

If borrowers have the above, then the chances are that borrower will not get an approve/eligible per DU or LP FINDINGS

  • It is extremely important that mortgage borrowers re-establish credit
  • Make sure not to have any late payments after bankruptcy discharged date

Basics Of Conventional Loans

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 lenient mortgage lending guidelines than conventional loan programs
  • For example, the waiting period to qualify for a FHA Loan After Chapter 7 bankruptcy is two years from the bankruptcy discharge date
  • Whereas to qualify for a conventional loan after Chapter 7 Bankruptcy, the waiting period is 4 years
  • Waiting period can be longer with lenders that have overlays on conventional loans
  • Lenders with no overlays will go off finding on the AUS
  • To qualify for a conventional loan after Chapter 7 bankruptcy is determined by the Automated Underwriting System
  • The Automated Underwriting System will determine how strong a conventional mortgage applicant is
  • The Automated Underwriting System will analyze the borrower
    • AUS will see if he or she has re-established credit
    • Whether they have any late payments after the bankruptcy discharge
    • Credit debt to income ratios
    • Overall credit history
    • Income, reserves
    • Other credit and asset factors

Qualifying For FHA Loans Versus Conventional Loans

Qualifying For FHA Loans Versus Conventional 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 
  • Also, there are now new 2018 FHA mortgage lending limits that is now in effect
  • In most counties throughout the country, FHA now set the maximum loan limits in 2018 at $294,515 unless the property is located in a high cost county area
  • The old FHA maximum loan limit was at $275,665 but HUD Increased The FHA Loan Limits Beginning January 2018
  • Conventional loan limits is at $453,100 unless the property is located in a high cost county area where it is greater than the $453,100
  • For those home buyers who need a mortgage loan greater $294,515 and up to $453,100, then the home buyer needs to go through the conventional mortgage loan route

In most cases, you can go up to a 50% debt to income ratio on conventional loans.

Second Homes, Vacation Homes, Investment Homes

Second Homes, Vacation Homes, Investment Homes

Home Buyers of second homes, vacation homes, or investment homes, conventional loans is the only way to go. All conventional loans have a four year waiting period after Chapter 7 Bankruptcy.  With Chapter 13 Bankruptcy, there is a two year waiting period after Chapter 13 Bankruptcy discharged date to qualify for conventional loans. There is a four year waiting period after Chapter 13 Bankruptcy dismissal date to qualify for conforming loans.

  • FHA insured mortgage loans are only for owner occupied primary residential homes
  • Home Buyers or second homes or investment properties need to go with conventional loans
  • 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
  • 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

What If I Have Mortgage Part Of Chapter 7 Bankruptcy?

What If I Have Mortgage Part Of Chapter 7 Bankruptcy?

Consumers who had mortgage part of Chapter 7 Bankruptcy, there is a four year waiting period to qualify for conventional loans after Chapter 7 Bankruptcy discharge date. However, the housing event needs to be finalized as follows:

  • Short Sale
  • Foreclosure
  • Deed In Lieu Of Foreclosure

So if a conventional loan borrower has a mortgage part of Chapter 7 Bankruptcy four years ago but the foreclosure was not finalized until a month ago, the borrower will qualify for conventional loan even though the housing was not finalized until recently:

  • The date of the foreclosure, deed in lieu of foreclosure, or short sale does not matter as long as mortgage was part of bankruptcy
  • This is not the case with government loans
  • With FHA, VA, USDA Loans, the waiting period clock starts from the date of the short sale and/or recorded date of the foreclosure/deed in lieu of foreclosure

Home Buyers who need to qualify for conventional loans or government loans with a direct lender with no lender overlays and licensed in multiple states, please contact us at Gustan Cho Associates Mortgage Group at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends, and holidays.

Gustan Cho

www.gustancho.com

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