Conventional Loan After Chapter 7 Bankruptcy Mortgage Guidelines

This Article Is About Conventional Loan After Chapter 7 Bankruptcy Mortgage Guidelines

Many people think only borrowers with great credit and higher credit scores can qualify for a conventional loan.

  • Often times borrowers assume conventional loans are for good credit borrowers and FHA loans are for those with bad credit
  • The above statement is not true
  • Conventional and FHA loans have separate lending guidelines
  • Borrowers can qualify for government and/or conventional loans with prior bad credit
  • However, lenders want to see rebuilt and reestablished credit and timely payments in the past 12 months to get an approve/eligible per automated underwriting system (AUS)
  • Having bankruptcy is not the same as having bad credit

In this article, we will discuss and cover Conventional Loan After Chapter 7 Bankruptcy Mortgage Guidelines.

Conventional Loan After Chapter 7 Bankruptcy: Mortgage After Bankruptcy

Bankruptcy is a federal law consumer can take advantage of to get a fresh financial start in their lives:

  • Many Americans who had extenuating circumstances and are in substantial debt try so hard not to file bankruptcy
  • They actually think and assume filing bankruptcy is like ruining their life and any hope of being able to purchase a house
  • This is not the case
  • Actually, it is the opposite
  • The team at Gustan Cho Associates have helped countless borrowers get to over 700 credit scores after the bankruptcy discharged date
  • GCA Mortgage Group offers non-QM mortgages one day after bankruptcy with a 30% down payment

It is better to file for bankruptcy and get a fresh financial start in life.

Importance Of Rebuilding And Re-establishing Credit After BankruptcyConventional Loan After Chapter 7 Bankruptcy

You can definitely qualify for a conventional loan after bankruptcy after you meet the minimum waiting period requirements.

  • However, just meeting the mandatory waiting period requirement does not automatically qualify you for a mortgage
  • Lenders want to see rebuilt and reestablished credit after bankruptcy
  • We will show you and help you reestablish your credit after bankruptcy

Gustan Cho Associates has a proven method on how to boost your credit scores to over 700 FICO in just less than one year after the Chapter 7 Bankruptcy discharged date.

  • The team at Gustan Cho Associates have helped thousands of folks rebuild and re-establish credit after bankruptcy and foreclosure
  • Gustan Cho Associates can help borrowers get a 700 credit score in just less than one year after the Chapter 7 Bankruptcy discharged date
  • Homebuyers who are planning in buying a home in the near future should consult with a loan officer and start preparing to qualify for a mortgage
  • Homebuyers with a prior bankruptcy can qualify for a home mortgage after bankruptcy
  • Mortgage borrowers can qualify for government and conventional loans after bankruptcy and/or foreclosure
  • Borrowers can qualify for a conventional loan after bankruptcy after meeting the mandatory waiting period requirements

In this article, we will discuss and cover qualifying for a Conventional Loan After Chapter 7 Bankruptcy.

How Can I Qualify For A Conventional Loan After Chapter 7 Bankruptcy

To qualify for a conventional loan after Chapter 7 bankruptcy, borrowers need to wait 4 years after the discharge date.

  • There a four waiting period after the Chapter 7 Bankruptcy discharged date
  • There is a two-year waiting period after the Chapter 13 Bankruptcy discharged date
  • There is a four-year waiting period after the Chapter 13 Bankruptcy discharged date
  • To qualify for a conventional loan, the borrower needs to get an approve/eligible per AUS

Besides waiting for the mandatory waiting period, borrowers need to meet the following as well:

  • Re-established credit after bankruptcy
  • No late payments after Chapter 7 bankruptcy
  • Maximum 50% debt to income ratio
  • 3% to 5% down payment is required on conventional loans
  • The minimum credit score required on conventional loans is 620 FICO

In this article, we will cover and discuss qualifying for a conventional loan after Chapter 7 Bankruptcy.

Conventional Loan After Chapter 7 Bankruptcy: General Guidelines On Conventional Loans

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 the bankruptcy discharged date
  • Monitor your credit report like you monitor your bank account

Keep all your credit utilization at below 10% utilization for maximum credit score optimization.

Basics Of Conventional Loans

What are the basics of conventional loans

There are times where a home buyer needs to go with a conventional loan program than an FHA insured mortgage loan.

  • FHA has much lenient mortgage lending guidelines than conventional loan programs
  • For example, the waiting period to qualify for an 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
  • The 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.

Conventional Loan After Chapter 7 Bankruptcy: How Does The Automated Underwriting System Work

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

Conventional Loan After Chapter 7 Bankruptcy: 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. HUD, the parent of FHA, allow borrowers with under 580 credit scores and down to a 500 FICO to qualify for an FHA loan with an approve/eligible per AUS and a 10% versus a 3.5% down payment.

  • 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 2020 FHA mortgage lending limits that are now in effect
  • In most counties throughout the country, HUD now set the maximum loan limits in 2020 at $356,362 unless the property is located in a high-cost county area

2021 FHA maximum loan limit is $356,362 due to rising home prices. The Federal Housing Finance Agency (FHFA) has increased conforming loan limits for 2021 to $548,250.

HUD And The FHFA Increase Loan Limits Due To Skyrocketing Home Prices 

Both HUD and the Federal Housing Finance Agency have increased FHA and Conforming Loan Limits for 2021 due to rising home prices:

  • HUD Increased The FHA Loan Limits for the past five years in a row due to skyrocketing home prices
  • Conventional loan limits are capped at $548,250 unless the property is located in a high-cost county area
  • The high balance FHA loan limit on a single-family home is capped at $822,375
  • Any FHA loan that is greater than $548,250  is called high balance FHA loans or Jumbo FHA Loans
  • For those homebuyers who need a mortgage loan greater than $$356,362 and up to $548,250, 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 HomesSecond Homes, Vacation Homes, Investment Homes

Home Buyers of second homes, vacation homes, or investment homes, conventional loans are 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 the Chapter 13 Bankruptcy dismissal date to qualify for conforming loans.

  • FHA 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
  • A 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 mortgages.

Conventional Loan After Chapter 7 Bankruptcy: What If I Have Mortgage Part Of Chapter 7 Bankruptcy?

For consumers who had a mortgage part of Chapter 7 Bankruptcy, there is a four-year waiting period to qualify for conventional loans after the Chapter 7 Bankruptcy discharged 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 a 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 the mortgage was part of the 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.

Qualifying For A Mortgage With A Lender With No Lender Overlays

Home Buyers who need to qualify for conventional loans or government loans with no lender overlays and licensed in multiple states, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

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