This Article On Conventional Loan After Deed In Lieu And Short Sale Guidelines
Fannie Mae guidelines waiting period to qualify for a conventional loan after a deed in lieu of foreclosure or short sale is 4 years from the recorded date of the deed in lieu of foreclosure and/or the short sale date. The waiting period start date is reflected on the HUD’s settlement statement if the home buyer has a short sale or recorded date of DIL. However, many lenders have their own rules and guidelines when it comes to approving a conventional loan after a deed in lieu or short sale. Mortgage Overlays are the additional stricter rules and guidelines set by the individual lender is above and beyond Fannie Mae and Freddie Mac Guidelines. All lenders need to meet Fannie Mae and/or Freddie Mac Guidelines. However, every lender can have higher mortgage lending requirements on top of Fannie/Freddie which are called mortgage overlays.
Overlays On Conforming Loans
Just because Fannie Mae’s guidelines for a conventional loan after a deed in lieu or short sale is 4 years, that does not mean that conventional borrowers are home free. Many lenders will have their own mortgage overlays. I get countless inquiries from homebuyers who have been turned down by other lenders due to their overlays. Gustan Cho Associates has no overlays on government and conventional loans. Most lenders do have their own conventional loan overlays.
Common Overlays By Mortgage Lenders
Here are typical mortgage overlays by lenders:
- Higher than minimum credit score requirements
- Loan To Value
- Outstanding collections and/charged-off accounts to be paid when AUS does not condition it
- The minimum amount of credit tradelines
- Longer waiting period requirements than the minimum requirements
Verification Of Rent is required when AUS does not condition for it.
Automated Underwriting System And Getting Approve/Eligible Findings
In order to qualify for a conventional loan after a deed in lieu or short sale with a 5% down payment, borrowers need to get an approve/eligible per Fannie Mae’s DU FINDINGS.
- Without an approve/eligible, the deal cannot proceed
The Automated Underwriting System is a sophisticated electronic underwriting system that analyzes the following:
- mortgage applicant’s income
- credit scores
- credit history
- payment history
- public records
Other factors in the mortgage application as well as the credit report and render a decision within minutes.
Key To Getting An Approve/Eligible Per Automated Underwriting System
To get an approve/eligible per DU FINDINGS for a conventional loan after deed in lieu or short sale, the mortgage applicant needs the following:
- have timely payment history in the past 12 months
- credit scores north of 620
- proof of funds for a down payment and closing costs
- no late payments after the deed in lieu and/or short sale
- preferably have rental verification
Turned Down For Conventional Loan After Deed In Lieu Or Short Sale?
There are many borrowers who do meet the Fannie Mae Guidelines after a deed in lieu of foreclosure and/or short sale and have a 5% down payment on their home purchase but get turned down for a conventional mortgage loan due to overlays by lenders. Borrowers need to consult with lenders with no overlays who will just go off the DU FINDINGS. Borrowers who had a deed in lieu of foreclosure and/or short sale and have passed the four-year waiting period and have the 5% down payments with no late payments since DIL/Short Sale can normally qualify for Conforming Loans.
Update On Conventional Loan After Deed In Lieu And Short Sale
Here are the updated Conforming Guidelines:
- The Loan Limit as of 2018 is $453,100 unless the property is located in high-cost area
- The 2 year waiting period after deed in lieu of foreclosure and short sale with 20% down payment is no longer in effect as of 2018
- New Fannie Mae Lending Guidelines on qualifying for a conventional loan after deed in lieu of foreclosure and short sale is four years from the recorded date of the deed in lieu of foreclosure or the date of the short sale which is reflected on the HUD Settlement Statement
- There is a four-year waiting period to qualify for conventional loans after Chapter 7 Bankruptcy
- There is a two-year waiting period to qualify for Conforming Loans after Chapter 7 Bankruptcy
- Four year waiting period after Chapter 13 dismissal date
- Seven-year waiting period after the recorded date of foreclosure to qualify for conventional loans
Borrowers with mortgage part of Chapter 7 Bankruptcy can qualify for Conventional Loans four years after the Chapter 7 Bankruptcy discharged date. The housing event can be recorded at a later date after the Chapter 7 Bankruptcy discharged date and has no bearing on the waiting period.
Home Buyers who need to qualify for conventional or government loans with direct lender with no overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at firstname.lastname@example.org.
May 24, 2020 - 4 min read