In this blog, we will cover FNMA Guidelines on foreclosure on Conventional loans. There have been changes to the FNMA guidelines on foreclosure.

Fannie Mae and Freddie Mac are the two mortgage giants in the United States that set mortgage lending guidelines and requirements for Conventional loans.

Conventional loans are also called conforming loans. It is called conforming loans because they need to conform to the rules, regulations, and mortgage guidelines created and implemented by Fannie Mae and Freddie Mac. Conventional loan guidelines are different than FHA lending guidelines, VA Lending Guidelines, and USDA lending guidelines. This article will discuss and cover FNMA guidelines on foreclosure on Conventional loans.

FHA Versus Conventional Mortgage Guidelines on Foreclosure

FNMA Guidelines On Foreclosure are more complex than FHA guidelines on foreclosures. FHA has the same waiting period to qualify for an FHA loan after foreclosure, deed-in-lieu of foreclosure, and short sale. However, FNMA Guidelines On Foreclosure have different waiting periods after foreclosures, deed-in-lieu of foreclosures, and short sales. If the borrower had a prior mortgage part of bankruptcy where the foreclosure was recorded at a much later date than the discharged date of the Chapter 7 Bankruptcy, the following applies:

• 4-year waiting period from the discharge date of bankruptcy
• The borrower cannot reaffirm the mortgage
• The date of the housing event does not matter
• However, the housing event needs to be finalized

FNMA Guidelines on Foreclosure Waiting Period

As mentioned in the first paragraph, FHA requires the same waiting period to qualify for an FHA Loan after a foreclosure, deed-in-lieu of foreclosure, and short sale. This blog will compare FHA loans versus Conventional loans since they are two of the most popular mortgage loan programs. The waiting period to qualify for an FHA loan after a deed-in-lieu of foreclosure, foreclosure, and a short sale is three years.

With foreclosures and deed-in-lieu of foreclosure, the waiting period starts from the date of the sheriff’s sale or the date when the note borrower’s name was transferred out of their name and into the name of the lender.

Many people think that the waiting period starts when they turn in the keys to the bank. But that is not the case. The three-year time clock starts from the short sale date, reflected on the HUD Settlement Statement, with qualifying for an FHA loan after a short sale.

Types of Housing Events 

With Conventional loans, FNMA guidelines on foreclosure state a mandatory 7-year waiting period to qualify for a Conventional loan from the recorded foreclosure date. Or the date when the homeowner’s name was transferred into the mortgage lender’s name. Fannie Mae and Freddie Mac have different waiting period requirements after a foreclosure, a deed-in-lieu of foreclosure, and a short sale.

For those who had a prior short sale or deed-in-lieu of foreclosure, Fannie Mae and Freddie Mac require that the Conventional mortgage loan borrower has passed a four-year mandatory waiting period after the recorded date of the deed-in-lieu of foreclosure or short sale to qualify for a Conventional loan.

There is a four-year waiting period to qualify for a Conventional Loan after a Chapter 7 Bankruptcy discharge date. There is a two-year mandatory waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy discharge date.

FNMA Guidelines on Foreclosure With Mortgage Included in Bankruptcy

For borrowers with a mortgage part of bankruptcy, there is a four-year mandatory waiting period from the discharge date of your Chapter 7 Bankruptcy to qualify for a Conventional loan. Michelle McCue, the regional managing director at Gustan Cho Associates explains the FNMA guidelines on a foreclosure with a prior mortgage included in bankruptcy:

The waiting period is four years from the discharge date of bankruptcy even though the actual foreclosure or short sale did not happen after the Chapter 7 Bankruptcy discharge date. This is a major positive for those seeking to qualify for a Conventional loan. This only applies to Conventional Loans and not other mortgage loan programs. For example, suppose you had a mortgage part of the bankruptcy and wanted to qualify for an FHA loan. In that case, there is a three-year mandatory waiting period after the recorded foreclosure or short sale date, even though the mortgage was part of the Chapter 7 Bankruptcy discharge. There are many times when lenders take their sweet time.

Some may even take several years to finalize a foreclosure where the homeowner had the mortgage part of the bankruptcy. Homebuyers looking for a Conventional Mortgage Lender with no overlays, please get in touch with us at Gustan Cho Associates at 800-900-8569 or text 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 to answer your phone calls and any questions you may have.