Conventional Loans with Derogatory Credit: How to Qualify and Get Approved
If you have had past credit problems, such as bankruptcy, foreclosure, or short sale, you might be wondering: Can I still qualify for a conventional mortgage? The answer is totally yes, and this guide will show you exactly how to do it.
At Gustan Cho Associates, we help borrowers who are told “no” by other lenders daily. Even if you’ve had serious credit issues, we offer conventional loans with derogatory credit through Fannie Mae and Freddie Mac like HOMESTYLE and HOMEONE, with no lender overlays.
This article explains everything you need to know about qualifying for a conventional loan after a credit event—and how to get started today.
What Is Considered Derogatory Credit for Conventional Loans?
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Conventional loans with derogatory credit involve serious negative marks on an individual’s credit report, indicating a pattern of missed payments or unresolved debts. These marks can include significant financial events such as Chapter 7 or Chapter 13 bankruptcy, foreclosure, a short sale or deed-in-lieu of foreclosure, and mortgage charge-offs.
Additionally, having multiple bankruptcies within seven years also contributes to the classification of having derogatory credit.
These events don’t mean your homeownership dream is over. You must meet the required waiting periods and show you’ve re-established credit since the event.
Waiting Periods for Conventional Loans After Bankruptcy
Conventional loans with derogatory credit are possible, although Fannie Mae and Freddie Mac impose a waiting period following bankruptcy:
Chapter 7 Bankruptcy:
- 4 years from the discharge or dismissal date
Chapter 13 Bankruptcy:
- 2 years from the discharge date
- 4 years from the dismissal date
Suppose you’ve had multiple bankruptcies in the last seven years. In that case, a 5-year waiting period is required from the most recent discharge or dismissal.
Tip: These timelines start from the discharge/dismissal date, not the filing date.
Please see our MORTGAGE PART OF BANKRUPTCY BLOG for more information.
Can I Get a Conventional Loan After Foreclosure?
Yes, but the waiting period is longer.
Foreclosure Waiting Period:
- It’s seven years since the foreclosure was officially recorded (not when you moved out).
If you included the mortgage in a Chapter 7 bankruptcy, there’s good news:
Fannie Mae Exception
In cases where mortgage debt has been discharged due to bankruptcy, borrowers may find some relief regarding the waiting period for obtaining financing. Specifically, if you can provide proof of the discharge from a Chapter 7 bankruptcy, you may be eligible for a reduced waiting period of just 4 years, rather than the standard 7 years.
This can help people seeking conventional loans with derogatory credit, as it opens up opportunities to secure funding sooner than typically expected. Understanding these exceptions can greatly enhance your options when navigating the challenges of credit history.
At Gustan Cho Associates, we understand the details and help you take advantage of this exception when possible.
Conventional Loan After Short Sale, Deed-in-Lieu, or Charged-Off Mortgage
Short sales, deeds-in-lieu, and mortgage charge-offs have the same waiting period for conventional loans:
- 4 years from the date reported on your credit report or from completion
Definitions:
Short Sale
A short sale occurs when an individual sells their home for an amount lower than their mortgage balance. This usually comes into play when the homeowner can’t keep up with mortgage payments because of financial issues, and the house isn’t worth as much anymore. The lender has to agree to take that lower sale price as full payment, which means they accept they won’t get back the whole loan amount. This option can be a faster and less stressful way to handle things than going through foreclosure, helping both the homeowner and the lender.
Deed-in-Lieu
A deed-in-lieu of foreclosure is when a homeowner decides to hand over their property to the lender instead of going through the foreclosure process. This usually happens when the homeowner can’t keep up with their mortgage payments and isn’t able to sell the house. By taking this step, they can reduce some of their financial stress and damage to their credit score compared to a full foreclosure. This also helps the lender avoid the hassle and costs of foreclosing a home.
Charged-Off Mortgage
A charged-off mortgage happens when a lender decides they’re unlikely to collect on a loan, usually after the homeowner has missed several payments. This doesn’t mean the homeowner is off the hook for paying back the loan; instead, the lender marks it as a loss in their financial records. While this might take the pressure off the lender, the borrower’s credit report will show this negative mark, making it tough to get future loans or credit. Plus, they might still hear from debt collectors or the original lender about repaying the debt.
Even with these on your record, you can qualify for conventional loans with derogatory credit if you meet the 4-year mark and re-establish your credit.
How to Re-Establish Credit After Derogatory Events
Re-establishing credit is critical to getting approved for conventional loans with derogatory records.
Here’s how you can do it:
- Open new credit lines (credit cards, secured cards, installment loans)
- Make on-time payments consistently
- Keep credit utilization low (under 30% of your limit)
- Avoid new collections or charge-offs
- Dispute errors on your credit report
Lenders want to see that you’ve changed your habits and can manage debt responsibly.
Can I Get Approved Through Automated Underwriting Systems (AUS)?
Yes! Fannie Mae‘s Desktop Underwriter (DU) and Freddie Mac’s Loan Product Advisor (LPA) use automated underwriting systems to evaluate your application.
To get approved:
- You must meet the waiting period for your credit event
- You must show re-established credit
- You must meet debt-to-income ratio and credit score requirements (usually 620+ for conventional)
At Gustan Cho Associates, we have no lender overlays, so we go strictly off the AUS findings. If DU or LPA gives the green light, you’re approved.
Why Choose Gustan Cho Associates for Conventional Loans with Derogatory Credit?
At Gustan Cho Associates, we specialize in conventional loans with derogatory credit. Here’s why homebuyers across the U.S. choose us:
- No lender overlays – We follow Fannie Mae and Freddie Mac guidelines exactly
- Experts in AUS approvals for borrowers with past credit issues
- Fast closings and clear communication
- Available 7 days a week to guide you through the process
Whether you’ve had a bankruptcy, foreclosure, short sale, or just bad credit, we’re here to help you buy or refinance a home with confidence.
Next Steps: How to Get Started Today
You don’t have to wait forever to become a homeowner again. If you’ve met the waiting period and rebuilt some credit, you’re likely eligible.
Borrowers who need a five-star national mortgage company licensed in 50 states with no overlays and who are experts on conventional loans with derogatory credit, please contact us at 800-900-8569, text us for a faster response, or email us at gcho@gustancho.com.
Final Thoughts
Getting conventional loans with derogatory credit is not impossible. With some solid advice, a good understanding of the waiting times, and a mortgage broker who knows all the ins and outs, you could be on your way to owning a home sooner than you think.
Let Gustan Cho Associates help you out on this journey. We’re all about approval, not judgment!
Frequently Asked Questions About Conventional Loans with Derogatory Credit:
1. Can I Get a Conventional Loan if I have been in Bankruptcy Before?
A: You can still qualify for conventional loans with derogatory credit after bankruptcy. Just wait for four years after a Chapter 7 discharge or two years after your Chapter 13 discharge. In the meantime, it’s a good idea to get your credit back on track.
2. How Long do I Wait to Get a Conventional Loan After a Foreclosure?
A: You’ll need to wait 7 years from the date the foreclosure was officially recorded. If the mortgage was included in a Chapter 7 bankruptcy, you may qualify after just 4 years. Many people get approved for conventional loans with derogatory credit once the waiting period is over.
3. What is a Short Sale, and Can I Still Get a Mortgage After One?
A: A short sale occurs when your home is sold for less than you owe. Yes, you can still qualify for a conventional loan with derogatory credit as long as it’s been four years since the short sale and you’ve rebuilt your credit.
4. Can I Qualify for a Conventional Loan After My Mortgage was Charged Off?
A: Yes. A charged-off mortgage means the lender gave up trying to collect the debt. You’ll need to wait 4 years after the charge-off date. You can still qualify for conventional loans with derogatory credit once you meet the waiting period and show good credit habits.
5. What does Re-Establishing Credit Mean?
A: It means showing lenders that you’ve learned from past credit mistakes. To re-establish credit, open new accounts, make all payments on time, and avoid new negative marks. This is key to getting approved for conventional loans with derogatory credit.
6. What Credit Score do I Need to Get a Conventional Loan After Bad Credit?
A: Most conventional loans require a minimum 620 credit score, even if you’ve had past issues. Once the waiting period ends and your credit is in better shape, you may be approved for a conventional loan with derogatory credit.
7. Will I Need to Pay Off Collections to Get Approved?
A: Not always. Medical collections usually don’t need to be paid off. For other types of collections, it depends on your automated underwriting system (AUS) results. At Gustan Cho Associates, we go by what the system says for conventional loans with derogatory credit.
8. Can I Still Buy a House if I have had Multiple Bankruptcies?
A: Yes, but the waiting period is 5 years from your most recent discharge if you had more than one bankruptcy in the last 7 years. We’ve helped many borrowers with multiple bankruptcies get conventional loans with derogatory credit.
9. Do I Need a Big Down Payment if I have bad Credit?
A: Not necessarily. Some Fannie Mae and Freddie Mac programs allow as little as 3% down if you qualify. At Gustan Cho Associates, we’ll help you find the best option for conventional loans with derogatory credit based on your current situation.
10. How Can Gustan Cho Associates Help Me Get Approved?
A: We specialize in helping borrowers who were turned down elsewhere. With no lender overlays, we follow Fannie Mae and Freddie Mac rules. Suppose you’re past the waiting period and your credit is back on track. In that case, we can get you approved for conventional loans with derogatory credit fast.
This blog about “Conventional Loans With Derogatory Credit Are Possible” was updated on August 5th, 2025.
