This Article covers Conventional Loans With Derogatory Credit Mortgage Guidelines
Many clients of Gustan Cho Associates are interested in a conventional mortgage.
- We offer a full slate of conventional mortgage products without any LENDER OVERLAYS
- We even participate in specialty loan programs offered by FREDDIE MAC and FANNIE MAE such as HOMESTYLE and HOMEONE
- It is estimated Conventional mortgages make up nearly 60% of the mortgages in the United States
- The majority of our clients call in with questions around the waiting period after derogatory credit events
How to utilize conventional mortgages after a foreclosure, deed-in-lieu of foreclosure, short sale, and bankruptcy. We will cover and discuss Conventional Loans With Derogatory Credit Mortgage Guidelines.
Fannie Mae And Freddie Mac Guidelines On Conventional Loans With Derogatory Credit
The guidelines for conventional mortgages are put in place by the government-sponsored enterprise (GSE) firms; Freddie Mac and Fannie Mae.
- They have stepped in after the real estate crash of 2008 and put forth very black-and-white guidelines
- When there is a significant derogatory credit event on the credit report, the likelihood of future defaults significantly increases
- This creates a higher level of risk for the lender
- Fannie Mae describes examples of significant credit derogatory events as bankruptcies, foreclosures, deeds-in-lieu of foreclosure, pre-foreclosure sales, short sales, and charge-off mortgage accounts
- It is the lender’s responsibility to determine the cause of the significant derogatory credit information
- They must verify that sufficient time has elapsed since the date of the last derogatory items
The lender would like to see the borrower has re-established credit history. Of course, the lender does make the final decision, but the time frames must comply with conventional guidelines.
What Is Considered Conventional Loans With Derogatory Credit
The majority of these derogatory credit events will show up on the credit report.
- The borrower is also required to complete a declaration section on their mortgage application
- There are very specific questions regarding foreclosures, past due delinquencies and federal debt, bankruptcies, and cosigning
- Not all foreclosures report on credit
- The lender is responsible to complete third-party verification in public record searches as part of the loan approval process
Please see the declaration questions below (letters a through m), these questions are part of every mortgage application:
What are the waiting periods for derogatory credit events for conventional mortgages?
Below Is The Mandatory Waiting Period Requirements After Bankruptcy and/or Housing Event:
- Bankruptcy Chapter 7 – 4 years from the discharge or dismissal date
- Bankruptcy Chapter 13 – 2 years from the discharge date
- 4 years from the dismissal date
Multiple Bankruptcy Filings
If you have more than one bankruptcy filed within the past seven years, a five-year waiting is required from the dismissal or discharge date:
- The presence of multiple bankruptcies significantly increases the likelihood of future default
- Multiple bankruptcies apply to one person
- Meaning if a borrower has one bankruptcy and a co-borrower has one bankruptcy, this is not multiple bankruptcies
Multiple bankruptcies must be filed by the same individual person for this rule to apply.
Foreclosure Mortgage Guidelines
7 year waiting period from the date the foreclosure was RECORDED with the county:
- Just because you leave a foreclosed property does not mean the county will record that the same day
- It is important to keep all records of your foreclosure for future reference
The time it takes for the county to record the foreclosure on the title will vary per county.
Fannie Mae And Freddie Mac Guidelines On Mortgage Included In Bankruptcy
The exception to the foreclosure waiting period when the home is included in Chapter 7 Bankruptcy:
- Many times a mortgage is included in Chapter 7 bankruptcy
- The bankruptcy waiting will be applied if the appropriate documentation verifies the mortgage obligation was discharged within the bankruptcy
- In short, the 4-year waiting for the Chapter 7 bankruptcy will override the seven-year waiting
- For a foreclosure, if the property was included in the Chapter 7 bankruptcy
Please see our MORTGAGE PART OF BANKRUPTCY BLOG for more information.
Conventional Loans With Derogatory Credit Mortgage Guidelines On Housing Event
Pre-foreclosure sale, short sale, deed-in-lieu of foreclosure, and charged-off mortgage accounts –
- Pre-foreclosure or short sale results in paying off less than the total amount due
- This amount was pre-approved by the servicer
- A deed-in-lieu of foreclosure is a situation in which the deed of the property is transferred back to the servicer
- A Charged off mortgage account occurs when the Creditor has determined that there is little or no likelihood of this Mortgage Debt being paid
- They will charge-off the account on their end.
For all three derogatory credit described above, a four-year waiting. Is required from the completion date of the deed-in-lieu, pre-foreclosure sale, short sale, or charged off as reported on the credit report.
Importance Of Re-Established Credit To Qualify For Conventional Loans With Derogatory Credit
As mentioned earlier in this article, the lender would like to see re-established credit tradelines. A borrower’s credit is considered re-established once the following events occur:
- The required waiting period has elapsed
- The loan receives a qualifying Automated Underwriting System (AUS) reading
- A borrower has opened new tradelines with on-time payments
Below is a summary of waiting periods from FANNIE MAE’S WEBSITE.
Qualifying For A Mortgage With A National Direct Lender With No Lender Overlays
For more information on derogatory credit and how it will affect your conventional mortgage qualifications, 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. Gustan Cho Associates offers competitive rates and lightning fast underwriting on all conventional mortgages! We are available seven days a week! 75% of our clients have been turned down by their current lender or are not Receiving the customer service they deserve. Our loan officers take pride in being up-to-date on all mortgage guidelines. There are many things to consider when applying for a mortgage. We take the time to explain the process to you and your family. We look forward to hearing from you!
