2016 Fannie Mae Bankruptcy Guidelines

Fannie Mae Bankruptcy Guidelines In Qualifying For Conventional Loan

Fannie Mae Bankruptcy Guidelines require mandatory waiting period after Chapter 7 Bankruptcy and Chapter 13 Bankruptcy for a conventional loan borrower to be able to qualify for a conventional loan. Fannie Mae and Freddie Mac are the two mortgage giants that sets standards and guidelines on conventional mortgage loans. The Federal Housing Administration, part of the United States Department of Housing and Urban Development ( HUD ) is the entity that sets mortgage lending guidelines on FHA Loans. FHA and Fannie Mae and/or Freddie Mac have different mortgage lending guidelines when it comes to qualifying for a mortgage loan after bankruptcy.

Fannie Mae Bankruptcy Guidelines: Waiting Period After Bankruptcy

Fannie Mae Bankruptcy Guidelines on waiting period after Chapter 7 Bankruptcy requires that the mortgage loan borrower needs to wait four years from the discharged date of their Chapter 7 Bankruptcy to qualify for a conventional loan. Meeting the mandatory Fannie Mae Bankruptcy Guidelines does not guarantee a mortgage borrower that they will get a conventional mortgage loan approved. Conventional Loan Borrowers also needs to meet other Fannie Mae and/or Freddie Mac Mortgage Lending Guidelines with regards to debt to income ratios, credit scores, and credit history after bankruptcy in qualifying for a conventional loan after both a Chapter 7 Bankruptcy and/or Chapter 13 Bankruptcy.

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

  1. Two year waiting period after a Chapter 13 Bankruptcy discharged date.
  2. 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 and 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.

Other Fannie Mae Lending Requirements Besides The Waiting Period

To qualify for a conventional loan, the borrower needs a minimum of a 620 FICO 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 and 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 is 5% down payment on a home purchase.

The maximum debt to income ratios allowed for conventional loans are 45% DTI whereas with FHA the maximum debt to income ratio allowed is 56.9% DTI if the FHA borrower has credit scores of 620 FICO or higher. If the FHA borrower has credit scores below 620 FICO, the debt to income ratio caps gets reduced to 43% DTI.

Most conventional loan mortgage lenders do not want to see conventional borrowers have any late payments after a Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. Lender want to see that borrower 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?

Many conventional mortgage loan 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. Conventional mortgage rates has nothing to do with a prior bankruptcy and are based on the following:

  1. Credit scores of the conventional mortgage loan borrower
  2. 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
  3. 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

A great new conventional lending guideline that was implemented and launched in 2014 is that if a consumer had a mortgage part of bankruptcy and the foreclosure happened after the Chapter 7 Bankruptcy, the waiting period clock starts from the date of the discharge date of the Chapter 7 Bankruptcy. There is a four year waiting period from the discharge date of the Chapter 7 Bankruptcy, 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 a FHA Loan. There are times where mortgage lenders take their sweet time in transferring the deed of the property into the lender’s name and 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.

If you are a home buyer who had a mortgage part of bankruptcy and need to qualify for a conventional loan, please contact me at 262-716-8151 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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