Fannie Mae Chapter 13 Guidelines On Conventional Loans

This Article Is About Fannie Mae Chapter 13 Guidelines On Conventional Loans

Freddie Mac and Fannie Mae Chapter 13 Guidelines do not allow borrowers to qualify for Conventional Loans during Chapter 13 Bankruptcy Repayment Plan. However, Fannie Mae and Freddie Mac Guidelines require a waiting period requirement after Chapter 13 Bankruptcy discharged and dismissal date to qualify for conventional loans.

  • Fannie Mae and Freddie Mac are the two mortgage giants that set standards on Conventional Loans
  • The role of Fannie Mae and Freddie Mac is to provide liquidity in the mortgage markets
  • Fannie Mae and Freddie Mac are government sponsored enterprises (GSE)
  • They are the two biggest buyers of mortgage on the secondary mortgage markets
  • Lenders fund their loans when they close using their warehouse line of credit
  • Lenders need to sell the loans they fund so they can pay their warehouse line of credit

As long as the loans conform to Fannie Mae and/or Freddie Mac Agency Guidelines, these two GSEs will purchase the loans.

The Role Of Fannie Mae And Freddie Mac

Fannie Mae Chapter 13 Guidelines On Conventional Loans

The role of Fannie Mae and Freddie Mac is to provide liquidity in the second mortgage markets.

  • Fannie Mae and Freddie Mac are the two largest buyers of mortgages in the secondary market
  • Lenders use their warehouse line of credit to fund the loans they close
  • After they close on the loans, they need to sell the loans funded using their warehouse line of credit so they can have liquidity so they make more loans and repeat the process
  • Most smaller lenders will sell the loans they fund to a larger mortgage banker
  • The larger mortgage banker will retain the servicing of the mortgage and purchase the loans from the smaller lender
  • The smaller lender will then pay the warehouse line of credit so they can originate and fund more loans
  • The larger mortgage banker will package up all the loans they purchased by smaller lenders and resell them to a larger aggregator like Fannie Mae and/or Freddie Mac on the secondary mortgage market
  • However, Fannie Mae and Freddie Mac will not purchase loans that do not conform to their agency mortgage guidelines

You can qualify for conventional loans after bankruptcy. However, you need to meet the minimum waiting period after bankruptcy.

How Fannie Mae And Freddie Mac Provide Liquidity In The Mortgage Markets

By purchasing conforming loans from lenders, Fannie Mae and Freddie Mac provides liquidity to lenders:

  • With the proceeds lenders get from selling the loans, they pay the warehouse line of credit
  • By paying the warehouse line of credit, lenders can originate and fund more loans and keep on repeating the process
  • This is how Fannie Mae and Freddie Mac provides liquidity on the secondary mortgage markets
  • Conventional loans are often referred to as conforming loans
  • This is because Fannie Mae and Freddie Mac will not purchase conventional loans that do not conform to their standards
  • The only two loan program that allows homebuyers to qualify for a mortgage during Chapter 13 Repayment Period are VA and FHA Loans
  • Both FHA and VA loans allow borrowers to qualify for home loans via manual underwriting during Chapter 13 Repayment Period without the bankruptcy being discharged
  • VA and FHA loans do not have any mandatory waiting period requirements after Chapter 13 Bankruptcy discharged date
  • However, any discharge that has not been seasoned for at least 24 months, it needs to be manually underwritten
  • VA and FHA are the two only loan programs that allow manual underwriting

In this article, we will cover and discuss Fannie Mae Chapter 13 Guidelines On Conventional Loans.

Fannie Mae Chapter 13 Guidelines: Qualifying For Conventional Loans After Bankruptcy

What does it look like? Qualification for a home loan after bankruptcy

Homebuyers can qualify for home loans after bankruptcy. With the exception of Non-QM Loans, government and conventional loans have a mandatory waiting period after bankruptcy. There is no waiting period requirements after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale with Non-QM Loans.

  • Many consumers are still under the impression and belief that bankruptcy on their record will cause a barrier in them qualifying for a mortgage
  • This is absolutely not the case
  • Bankruptcies is a federal law that helps consumers either completely discharge and/or restructure their debts
  • Chapter 7 Bankruptcy is normally for folks without a job and/or little to no income or assets
  • The Courts will completely discharge consumer debts with Chapter 7 Bankruptcy. Chapter 13 Bankruptcy is for consumers who have stable jobs and/or source of income and assets
  • Chapter 13 Bankruptcy allows consumers to reorganize their debts
  • A portion of their income is set aside by the Court Trustee and used to pay creditors
  • Most Chapter 13 Repayment Plans are for 36 to 60 months
  • After the repayment period is over, any debts left over is discharged by the courts
  • The consumer is debt-free at this point

There are mandatory waiting period requirements after bankruptcy to qualify for government and/or conventional loans.

Fannie Mae Chapter 13 Guidelines Versus Other Mortgage Programs

The only two loan programs that allow borrowers in an active Chapter 13 Bankruptcy Repayment Period to qualify for home loans are FHA and VA loans. There is no waiting period after Chapter 13 discharged date to qualify for VA and FHA Loans. The following are the mandatory waiting period requirements on government and conventional loans after bankruptcy and/or housing event:

  • FHA and VA require a two-year waiting period after Chapter 13 Bankruptcy discharged date
  • There is a three-year waiting period to qualify for FHA loans after foreclosure, deed in lieu of foreclosure, short sale
  • There is a three-year waiting period to qualify for USDA loans after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
  • There is a two-year waiting period after foreclosure, deed in lieu of foreclosure, short sale to qualify for VA loans
  • There is a four-year waiting period to qualify for conventional loans after Chapter 7 bankruptcy, deed in lieu of foreclosure, short sale
  • The waiting period is seven-years after standard foreclosure on conventional loans
  • There is a four-year waiting period after Chapter 7 Bankruptcy discharged date on conventional loans
  • There is a four-year waiting period after Chapter 13 Bankruptcy dismissal date on conventional loans
  • There is a two-year waiting period after Chapter 13 Bankruptcy discharged date on conventional loans

For more information about this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

4 Comments
  1. Jim E. says

    Hi, I need clarification with regards to how long after Ch. 13 BK discharge can I qualify for mortgage refinance. I see the bullets above with the explanation, however I am still confused. For example, Items #1 and #3 are the same but waiting periods are either 2 or 4 years. Which is correct?

    1) There is a four-year waiting period after Chapter 13 Bankruptcy discharged date on conventional loans
    2) There is a four-year waiting period after Chapter 13 Bankruptcy dismissal date on conventional loans
    3) There is a two-year waiting period after Chapter 13 Bankruptcy discharged date on conventional loans

    With regards to my personal situation, my Ch. 13 BK was discharged on 6/5/2018 (this was a 60 month plan).
    When can I qualify for a conventional loan? 2 years after 6/5/2018? Which will be next month (6/5/2020)?

    Please advise. Thanks.

    1. Gustan Cho, NMLS 873293 says

      You will qualify for a conventional loan two years from the discharged date of your Chapter 13 Bankruptcy which is next month. That is correct. #1 is a misprint. There is a four year waiting period after a Chapter 7 bankruptcy and NOT chapter 13. I will get that corrected now.

  2. Alicia says

    Is there a chance I can qualify for a conventional refi loan if my discharge was not processed by my lawyer when I finished my payment plan? I finished paying in 2017 but my lawyer keeps telling me he tried to reach me without any luck and I have all the emails proving the opposite. He recently reopened the case to process the discharge and is dated August 2020. It was his mistake and I want to refi now, have everything to prove it. Can I do a conventional loan?

    1. Gustan Cho, NMLS 873293 says

      You can qualify for an FHA loan but not conventional loan. There is a two year waiting period after Chapter 13 bankruptcy discharged date. There is no waiting period requirements on FHA Loans.

Leave A Reply

Your email address will not be published.

Call Now ButtonCALL NOW