This Article Is About Extenuating Circumstances Guidelines On Home Loans
There are certain agency mortgage guidelines borrowers need to meet to qualify for FHA, VA, USDA, and/or conventional loans. However, there are instances where the guidelines state that borrowers can be exempt from meeting certain agency guidelines due to extenuating circumstances. Getting exempt from meeting agency mortgage guidelines due to extenuating circumstances is very difficult. Very rarely can borrowers get away with meeting an agency mortgage guidelines due to extenuating circumstances. For example, to qualify for an FHA loan after the Chapter 7 bankruptcy discharged date, you need to wait two years from the discharged date. However, under HUD Agency Guidelines, you can qualify for an FHA loan after one year from the discharged date if you had extenuating circumstances. Same with VA loans. The VA requires a two-year waiting period after Chapter bankruptcy. However, the waiting period can be shortened to one year if the borrower had extenuating circumstances. In this article, we will discuss and cover extenuating circumstances on home loans. We will go over what extenuating circumstances are and examples of extenuating circumstances.
What Are Examples Of Extenuating Circumstances
Mortgage Agency Guidelines description of extenuating circumstances guidelines is very specific. Extenuating circumstances are circumstances that are beyond a person’s control. Divorce, change of careers, relocation due to climate are not considered extenuating circumstances. Extenuating Circumstances Guidelines are specific to all loan programs such as FHA, VA, USDA, Fannie Mae, Freddie Mac. All Agency Guidelines description of extenuating circumstances guidelines is isolated events. Extenuating circumstances are above and beyond a person’s control resulting in a sudden, significant, prolonged effect on the ability of the person’s ability to get income. Due to the extenuating circumstances beyond a person’s control, that person has suffered a significant increase in debt obligation with little to no income. Therefore, the person affected could not pay his or her bills timely and has suffered derogatory credit due to no income stream.
How Do You Prove You Had Extenuating Circumstances
All lenders require borrowers who have suffered extenuating circumstances to have proper documentation. A doctor’s note is not sufficient. Documentation of extenuating circumstances includes documented medical records and/or reports. Police reports and/or public records reports. Notice of job termination and/or layoffs. Severance paperwork by employers. Death certificate and/or accident reports. Under extenuating circumstances guidelines, the isolated incident must support that the incident was the cause of the reduction of income. The reduction in income led to the consumer not being able to pay their bills thus leading to bad credit will be considered extenuating circumstances. The mortgage underwriter needs to believe that the person had no other options to avoid paying their bills. The recent California Wildfires is considered an extenuating circumstance. The recent government shutdown would be considered an extenuating circumstance for government workers. People who could not sell their home due to a new job and/or transfer to a different part of the state or out of state is not considered an extenuating circumstance.
Does Divorce Meet Mortgage Extenuating Circumstances Guidelines?
Unfortunately, under mortgage extenuating circumstances guidelines, divorce is not considered extenuating circumstances. There are many instances where a spouse may have been a homemaker and gotten a divorce. It takes time to prepare to get back to the workforce. The reduction of household income should be considered an extenuating circumstance. However, agency extenuating circumstances guidelines do not consider divorce an extenuating circumstance.
Manual Underwriting Guidelines
VA and FHA Loans allow manual underwriting. Manual underwriting is when a human mortgage underwriter manually underwrites a mortgage loan. Although divorce is not technically considered an extenuating circumstance, many lenders will allow underwriter discretion on FHA and VA manually underwritten loans. For example, if the borrower had a perfect credit history and due to a divorce, there was a major reduction in income, and they had a period of derogatory credit due to this reduction of income, it may be considered extenuating circumstances. Another example is if a borrower had perfect credit on their mortgage and the property was granted to the ex-spouse, but the ex-spouse did not make the mortgage payments and the property. Foreclosure, this may be considered an extenuating circumstance. All manual underwriting requires two years of timely payments by the borrower. However, timely payments in the past 24 months by the borrower may be waived if the borrower had extenuating circumstances.
June 14, 2021 - 3 min read