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

Fannie Mae Bankruptcy Guidelines on Conventional Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers Fannie Mae Bankruptcy Guidelines on Conventional loans. Fannie Mae Bankruptcy Guidelines require a mandatory waiting period after Chapter 7 and Chapter 13 Bankruptcy for borrowers to qualify for a conventional loan. Mortgage borrowers can qualify for a mortgage after bankruptcy. However, borrowers need to meet the mandatory waiting period after bankruptcy to qualify for government or conventional loans. Meeting the mandatory waiting period requirements does not automatically qualify you for a home mortgage. Lenders want to rebuild and reestablish credit after bankruptcy or a housing event—no late payments after bankruptcy or foreclosure. A prior bankruptcy does not impact mortgage rates on government or conventional loans.

Getting A Home Mortgage After Bankruptcy

Bankruptcy is a federal law used by consumers who need a fresh financial start. Homebuyers can qualify for a mortgage after bankruptcy. Fannie Mae and Freddie Mac are the two mortgage giants that set standards and guidelines on conventional mortgage loans. The Federal Housing Administration, part of the United States Department of Housing and Urban Development (HUD), sets mortgage lending guidelines on FHA Loans. FHA, Fannie Mae, and Freddie Mac have different lending guidelines when qualifying for a mortgage after bankruptcy.

Fannie Mae Bankruptcy Guidelines On Waiting Period After Chapter 7

There is a four-year waiting period from the discharge date of Chapter 7 Bankruptcy to qualify for conventional loans. Meeting the mandatory waiting period requirements on Fannie Mae Bankruptcy Guidelines does not guarantee that borrowers will get a conventional mortgage loan approved. Lenders want to see rebuilt and reestablished credit after bankruptcy. No late payments after bankruptcy. One or two late payments after bankruptcy are not always a deal killer. Contact us at Gustan Cho Associates if you have late payments after bankruptcy to see if we can help you get approved for a mortgage. Borrowers also need to meet other Fannie Mae and Freddie Mac Mortgage Lending Guidelines with regard to the following:

  • debt to income ratios
  • credit scores
  • late payments after housing event 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 or Chapter 13 Bankruptcy.

Chapter 13 Fannie Mae Bankruptcy Guidelines

Fannie Mae Bankruptcy Guidelines on waiting period after Chapter 13 Bankruptcy a two-year waiting period after a Chapter 13 Bankruptcy discharge 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 or could no longer qualify for a Chapter 13 Bankruptcy repayment program due to extenuating circumstances like a loss of job or other income.

Minimum Credit Score and Down Payment Requirements

The minimum credit score required for FHA Loans is 580 FICOTo qualify for conventional loans, borrowers need a minimum of a 620 credit score. The minimum credit score required for FHA Loans is 580 FICO. The minimum down payment requirements for conventional loans are 3% for first-time homebuyers 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, the minimum down payment requirement on conventional loans is a 5% down payment on a home purchase.

Fannie Mae And Freddie Mac DTI Guidelines

The maximum debt-to-income ratio allowed for conventional loans is 50% DTI. There is no front-end debt-to-income ratio requirements on conventional loans. As long as the DTI does not exceed 50% DTI, borrowers should get 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 re-established credit after bankruptcy and have been timely on their minimum monthly payments.

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 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.
  • The 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 Fannie Mae Bankruptcy guidelines that were implemented and launched in 2014 is that if a consumer had a mortgage part of the 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 need 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 later after the Chapter 7 Bankruptcy to qualify for a conventional loan. This is different than with FHA Loans. With FHA Loans, if you had a mortgage part of bankruptcy, there is a three-year waiting period from the recorded date of the foreclosure or date of the sheriff’s sale to qualify for an FHA Loan. There are times when 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 foreclosure date has been recorded on the county’s recorder of deeds office.

Homebuyers who had a mortgage part of the bankruptcy and need to qualify for a conventional loan, please get in touch with us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.

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