Conventional Loan After Chapter 7 Bankruptcy Mortgage Guidelines

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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.

Prior bad credit, bankruptcy, foreclosure, a deed-in-lieu of foreclosure, short sale, collections, charge-off accounts has no bearing on the pricing of mortgage rates on conventional and FHA loans. You can have a prior bankruptcy or foreclosure and have no impact on loan-level pricing adjustments which means pricing hits for layered risk by mortgage lenders. The sole biggest factor on pricing mortgage rates by lenders are credit scores. The higher your credit scores, the lower your mortgage rates.

Borrowers can qualify for government and 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 Mortgage After Chapter 7 Bankruptcy

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Bankruptcy is a federal law consumers 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.

Many people 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 has helped countless borrowers get to over 700 credit scores after the bankruptcy discharged date. Gustan Cho Associates 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 Credit After Bankruptcy To Get a Mortgage

Just passing the waiting period after bankruptcy is not enough to qualify for a mortgage loan after bankruptcy. Lenders want to see borrowers have rebuilt their credit after bankruptcy and not have any late payments. Late payments after bankruptcy is like the kiss of death. Lenders label late payers after bankruptcy a second offender.

Secured credit cards are the easiest and fastest way of rebuilding your credit after bankruptcy. The team at Gustan Cho Associates are experts in helping borrowers rebuild credit after bankruptcy. Three to five secured credit cards and two credit rebuilder accounts will get you to a 700 credit score one year after Chapter 7 Bankruptcy discharge.

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.

Rebuilding And Re-Establishing 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 discharge date.

You do not need expensive credit repair companies to rebuild your credit after bankruptcy. The team at Gustan Cho Associates have helped thousands of consumers rebuild their credit after bankruptcy without charging anyone a dime. Whatever a credit repair company does, you can do it better at no cost.

The team at Gustan Cho Associates has 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.

Preparing To Get Qualified And Pre-Approved

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 approval/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

Can I Buy A House After Bankruptcy?

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.

Waiting Period For Conventional Loan After Chapter 7 Bankruptcy

There are times where a home buyer needs to go with a conventional loan program than an FHA-insured mortgage loan. HUD has much lenient mortgage lending guidelines than conventional loan programs.

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.

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

FHA Versus Conventional Loan After Chapter 7 Bankruptcy Guidelines

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, allows 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 2023 FHA mortgage lending limits that are now in effect. In most counties throughout the country, HUD now sets the maximum loan limits in 2023 at $427,030 unless the property is located in a high-cost county area.

2023 FHA’s maximum loan limit is $427,030 due to rising home prices. The Federal Housing Finance Agency (FHFA) has increased conforming loan limits for 2023 to $726,200..

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 2022 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 $647,200 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 $970,800
• Any FHA loan that is greater than $647,200 is called high balance FHA loans or Jumbo FHA Loans
• For those homebuyers who need a mortgage loan greater than $420,680 and up to $647,200, 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

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.

Homebuyers 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 With Prior Mortgage Included In 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 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

The Two Types Of Consumer Bankruptcies

There are two types of bankruptcies a person can file. A person who has no assets would normally file which is total liquidation and protection from creditors. Consumers who do not have income or are not employed and those with little to no assets often file Chapter 7 Bankruptcy.

Most debts are discharged with Chapter 7 Bankruptcies except for government loans, government debts, child support, alimony, student loan debts, and tax liens. If someone who has overwhelming debts with no short-term solution would probably consider filing Chapter 7 Bankruptcy.

Homeowners can keep their homes and still file Chapter 7 Bankruptcy. In this BLOG, we will discuss qualifying for a Mortgage Loan After Bankruptcy.

What Are The Waiting Period To Qualify For Mortgage Loan After Bankruptcy

For those who have recently filed Chapter 7 bankruptcy and want to be homeowners, there is a mandatory 2 year waiting period from the discharge date of the bankruptcy in order for them to qualify for an FHA and VA Loan:

Those who have just filed for bankruptcy should immediately start re-establishing their credit and try to improve their credit scores. A bankruptcy can drop a person’s credit score by more than 150 points.

The good news is that the person’s credit score will improve as months passes. Many folks who have filed bankruptcies have credit scores north of 700 after two years. This is because they consciously worked on repairing their credit and credit scores from the day they filed for bankruptcy. Remember that you get a fresh start after filing for bankruptcy.  Debt collectors can no longer come after you and all judgments on your record are null and void.

Chapter 13 Debt Restructuring Bankruptcy

Those who have assets and a job probably would be advised to file Chapter 13 bankruptcy. A Chapter 13 bankruptcy is a reorganization plan where a bankruptcy trustee is appointed to you. Your trustee will look at your gross monthly income and will take a portion of that and allocate it to your creditors.

Most Chapter 13 reorganization payment plans last 60 months before all debts are completely discharged. Those who have filed Chapter 13 bankruptcy, they are eligible to purchase a home via residential loan after one year into the Chapter 13 bankruptcy.

They would need the trustee’s approval. Most folks get approved by the bankruptcy courts for a home purchase because many times, a home purchase mortgage loan is less than the monthly rental payments.

Mortgage Loan After Chapter 13 Bankruptcy

Like those folks who filed Chapter 7 bankruptcy, those who filed Chapter 13 bankruptcy should start repairing and rebuilding their credit as soon as they file bankruptcy. They should be always paid their monthly bills on time and try never to be late with any payments. Many lenders frown upon those who have late payments after a bankruptcy and often times reject them for a mortgage loan.

Mortgage Guidelines After Bankruptcy and Housing Event

Here are the mortgage guidelines after bankruptcy and/or housing event:

• There is a two-year waiting period after a Chapter 7 Bankruptcy discharged date to qualify for FHA and VA loans
• There is a three-year waiting period after Chapter 7 Bankruptcy, foreclosure deed in lieu of foreclosure, short sale to qualify for USDA loans
• There is a two-year waiting period to qualify for VA loans after Chapter 7 Bankruptcy discharged date, foreclosure, deed in lieu of foreclosure, short sale
• There is a four-year waiting period to qualify for Conventional loans after a deed in lieu of foreclosure and/or short sale
• There is a seven-year waiting period to qualify for a Conventional loan after a regular foreclosure
• There is no waiting period requirement after Chapter 13 Bankruptcy discharge date on VA and FHA loans
• Borrowers can qualify for FHA and VA loans during Chapter 13 Bankruptcy Repayment Plan with Trustee Approval and Manual Underwriting
• There is a two-year waiting period after the 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 Conventional loans

Non-QM Loans do not require any waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale. For more information on this blog on conventional loan after Chapter 7 Bankruptcy or other mortgage topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Related> Waiting Period After Bankruptcy And Foreclosure Related> Qualifying For Mortgage After Bankruptcy And Foreclosure