Fannie Mae Bankruptcy Guidelines On Waiting Period After Chapter 7 & 13

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This BLOG On Fannie Mae Bankruptcy Guidelines On Waiting Period After Chapter 7 & 13 Was UPDATED And PUBLISHED On November 29th, 2019

Fannie Mae Bankruptcy Guidelines
Gustan Cho Associates

Fannie Mae Bankruptcy Guidelines In Qualifying For Conventional Loan

Fannie Mae Bankruptcy Guidelines require a mandatory waiting period after Chapter 7 Bankruptcy and Chapter 13 Bankruptcy for borrowers to be able to qualify for a conventional loan.

In this article, we will cover and discuss Fannie Mae Bankruptcy Guidelines On Waiting Period After Chapter 7 & 13.

Fannie Mae Bankruptcy Guidelines On Waiting Period After Chapter 7

what are Fannie Mae Bankruptcy Guidelines On Waiting Period After Chapter 7

Fannie Mae Bankruptcy Guidelines on waiting period after Chapter 7 Bankruptcy requires borrowers needs to wait four years from the discharged date of their Chapter 7 Bankruptcy to qualify for conventional loans.

  • Meeting the mandatory waiting period requirements on Fannie Mae Bankruptcy Guidelines does not guarantee borrowers that they will get a conventional mortgage loan approved
  • Borrowers also need to meet other Fannie Mae and/or Freddie Mac Mortgage Lending Guidelines with regards to the following:
    • debt to income ratios
    • credit scores
    • late payments after housing event and/or bankruptcy
    • credit history after bankruptcy

Re-established credit is normally required to get an approve/eligible per AUS to qualify for a conventional loan after both a Chapter 7 and/or Chapter 13 Bankruptcy.

Chapter 13 Fannie Mae Bankruptcy Guidelines

what are Chapter 13 Fannie Mae Bankruptcy Guidelines

Fannie Mae Bankruptcy Guidelines on waiting period after Chapter 13 Bankruptcy are as follows:

  • Two-year waiting period after a Chapter 13 Bankruptcy discharged date
  • Four year waiting period after a Chapter 13 dismissal date
  • A Chapter 13 dismissal is when the consumer did not complete the Chapter 13 Bankruptcy
  • Either canceled the Chapter 13 Bankruptcy repayment plan and/or could no longer qualify for a Chapter 13 Bankruptcy repayment program due to extenuating circumstances like a loss of job and/or other income

Minimum Credit Score And Down Payment Requirements

What is Minimum Credit Score And Down Payment Requirements

To qualify for conventional loans, borrowers need a minimum of a 620 credit score.

  • The minimum credit scores required for FHA Loans is 580 FICO
  • Minimum down payment requirements for conventional loans are 3% down payment for first time home buyers with Fannie Mae
  • 3% down payment with Freddie Mac as long as the home buyer did not own a home in the past three years
  • Otherwise, minimum down payment requirements on conventional loans are a 5% down payment on a home purchase

Fannie Mae And Freddie Mac DTI Guidelines

what are Fannie Mae And Freddie Mac DTI Guidelines

The maximum debt to income ratios allowed for conventional loans is 50% DTI. There are no front end debt to income ratio requirements on conventional loans. As long as the DTI does not exceed 50% DTI, borrowers should get an approve/eligible per AUS.

  • With FHA the maximum debt to income ratio allowed is 46.9% front end and 56.9% DTI back end to get an approve/eligible per automated underwriting system
  • The borrower needs credit scores of 620 FICO or higher to be eligible for the 46.9%/56.9% DTI
  • If the FHA borrower has credit scores below 620 FICO, the debt to income ratio caps gets reduced to 43% DTI

Most lenders do not want to see borrowers have any late payments after Chapter 7 and Chapter 13 Bankruptcy. The lender wants to see borrowers have re-established credit after bankruptcy and have been timely on all of their minimum monthly payments.

Are Mortgage Rates Higher With A Prior Bankruptcy On Conventional Loans?

Are Mortgage Rates Higher With A Prior Bankruptcy On Conventional Loans?

Many borrowers assume that they will get a higher mortgage rate because they have a bankruptcy showing on their credit report. This is absolutely not true. Mortgage rates have nothing to do with a prior bankruptcy and are based on the following:

  • Credit scores 
  • The down payment on the home purchase
  • Any down payment under 20% down payment will command a higher mortgage rate and private mortgage insurance will be required
  • Type of property will affect mortgage rates on conventional loans
  • Condominiums and 2 to 4 unit properties will yield a higher mortgage rate on conventional loans

Mortgage Part Of Bankruptcy

What is Mortgage Part Of Bankruptcy

A great new Fannie Mae Bankruptcy guidelines that were implemented and launched in 2014 is that if a consumer had a mortgage part of bankruptcy

  • If the borrower had a mortgage part of bankruptcy and foreclosure was finalized after the Chapter 7 Bankruptcy, the waiting period clock starts from the date of the discharge date of the Chapter 7 Bankruptcy
  • The date of the foreclosure and/or short sale does not matter
  • The housing event does needs to be finalized
  • Borrowers cannot have reaffirmed the mortgage
  • There is a four year waiting period from the discharge date of the Chapter 7 Bankruptcy
  • This holds true even though the foreclosure was recorded at a later date after the Chapter 7 Bankruptcy, to qualify for a conventional loan
  • This is different than with FHA Loans
  • With FHA Loans, if you had mortgage part of bankruptcy, there is a three year waiting period from the recorded date of the foreclosure and/or date of the sheriff’s sale in order to qualify for an FHA Loan
  • There are times where lenders take their sweet time in transferring the deed of the property into the lender’s name
  • This will hurt the potential home buyer because the waiting period clock does not start until the recorded date of the foreclosure that has been recorded on the county’s recorder of deeds office

Home buyers who had a mortgage part of bankruptcy and need to qualify for a conventional loan, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

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