Bankruptcy: Waiting Period After Bankruptcy

If you have a bankruptcy, there is a mandatory two year waiting period after bankruptcy in order for you to qualify for a FHA insured mortgage loan.  The waiting period after bankruptcy starts from the discharge date of the bankruptcy.  Just because you passed the waiting period after bankruptcy does not automatically qualify you for a residential mortgage loan.  Mortgage lenders like to see that the mortgage loan borrower has had no late payments after the bankruptcy discharge and that the mortgage loan borrower has re-established his or her credit since the bankruptcy.  For those folks who have recently filed bankruptcy should start re-establishing their credit as soon as possible.  A bankruptcy can drop your credit scores by more than 150 FICO points, however, this is a temporary set back.  The negative effects of your bankruptcy will eventually not affect your credit scores.  As your bankruptcy ages, your credit scores will naturally go back up even if you do not re-establish your credit.  However, by re-establishing your credit, your scores will go up rapidly.

Re-Establishing Credit After Bankruptcy

I have seen mortgage loan borrowers have credit scores of higher than 700 FICO after two years of filing bankruptcy.  The best and fastest way of re-establishing your credit after a bankruptcy is by getting secured credit cards.  I strongly recommend that you get three to five secured credit cards with $500 credit limits.  Anyone can get a secured credit card but make sure that you check with the secured credit card company and to confirm that the secured credit card company reports it to all three credit reporting agencies:  Transunion, Equifax, and Experian.  Some secured credit card companies only report to one or two credit bureaus and not all three.

Secured Credit Cards In Re-Establishing Credit

The reason you are getting secured credit cards is not for the convenience of having credit cards but to use it as a tool to improve your credit scores.  Each secured credit card should instantly boost your credit scores by at least 20 points or more and as your secured credit card ages, your scores will also improve.  Never be late on secured card monthly payments.  Secured credit card late payments will be reported on the credit bureaus and will negatively impact your credit scores.  You cannot be late on your secured credit card payments:  This will defeat the purpose of getting secured credit cards.  If you are making late payments on the minimum secured cards, it will be more of a negative to you than if you did not get secured credit cards.

Conventional Loan After Foreclosure

To qualify for a conventional mortgage loan after a bankruptcy, the waiting period is 7 years.  This waiting period of 7 years after bankruptcy to qualify for a conventional loan is not the mortgage lender’s qualification requirements but Fannie Mae’s waiting period guidelines.  For those who have a bankruptcy, FHA loans are the best route to take.

Foreclosure

A foreclosure is when a homeowner defaults on their mortgage loan and the bank takes possession of the property.  Thousands of homeowners faced foreclosures due to the economic collapse of 2008.  However, there is life after foreclosure.  Home buyers can qualify to purchase a home after a foreclosure.  There is a mandatory waiting period of 3 years from the recorded date of a foreclosure.  The recorded date is so important.  Just because you turn the keys in to your mortgage lender does not mean that the deed of your home was transferred out of your name.  The deed that has been transferred out of your name and into the mortgage lenders name needs to be recorded with the county recorder’s of deeds office.  This recording date is what mortgage lenders will go by as of the starting date of your waiting period after foreclosure.  Many mortgage lenders are in no hurry of transferring your name into their name on the deed of the foreclosed property.  If you are current going through a foreclosure or have recently had a foreclosure, make sure that the deed of the property is out of your name and into the mortgage lender’s name.  If your foreclosure went to a sheriff’s sale, the waiting period starts from the date of the sheriff’s sale.

Foreclosure Part Of Bankruptcy

I get asked many times on having a foreclosure part of bankruptcy.  Many folks who filed bankruptcy have the foreclosure part of bankruptcy.  For those who have foreclosure part of bankruptcy, they need to make sure that after the discharge of the bankruptcy that the deed is transferred out of their name into the mortgage lender’s name.  A foreclosure part of bankruptcy will wipe out the mortgage loan but the deed is still in the foreclosed homeowner’s name.  In a nutshell, the homeowner now owes nothing on their mortgage balance but owns the deed to the house.

Waiting Period After foreclosure Part Of Bankruptcy

If you have a foreclosure part of bankruptcy, the waiting period after the bankruptcy is two years from the date of the bankruptcy discharge date.  The foreclosure part on a foreclosure part of bankruptcy is a waiting period of three years from the recorded date of the foreclosure.  Many folks believe just because they have a foreclosure part of bankruptcy that the waiting period starts the date of the bankruptcy discharge date.  This is absolutely not the case.  Unfortunately, there are bankruptcy attorneys that did not advise their clients concerning this important matter and there are still thousands of folks who had a foreclosure part of bankruptcy where the deed is still in their name and not in the mortgage lender’s name.  A recent home buyer called me a few weeks ago and told me that it has been three years since they filed bankruptcy and they had a foreclosure part of bankruptcy.  They finally waited out the mandatory waiting period, or so they thought.  Unfortunately, the foreclosure part of bankruptcy was not transferred out of their names and it is still in their names.  These poor folks thought that having a foreclosure part of bankruptcy was the end of foreclosure and bad debt stage of their life but that is not the case.  Now they need to wait three years from the date when the mortgage lender transfers the deed out of their name into their name.

FHA BACK TO WORK EXTENUATING CIRCUMSTANCES DUE TO AN ECONOMIC EVENT

HUD launched a new FHA mortgage loan program that shortens the waiting period to one year for folks who have a bankruptcy and/or foreclosure.  It is called the FHA Back to Work due to an economic event mortgage program and to qualify for this program which shortens the waiting period to one year after a foreclosure and/or bankruptcy.   In order to qualify for the Back to Work mortgage program, the mortgage loan borrower needs to have been unemployed or underemployed for six months prior to the initiation of the bankruptcy and/or foreclosure which resulted a 20% reduction of their household income and due to this economic event, the result was for them to file bankruptcy and/or initiate foreclosure proceedings.  The Back to Work mortgage loan program applicant needs to have had good credit prior to the economic event and have re-established credit after the bankruptcy and/or foreclosure.  The Back to Work Extenuating Circumstances mortgage loan borrower needs to have no late payments after the bankruptcy and/or foreclosure and no overdrafts in bank statements in the past 12 months.  Rental verification is a must and will carry a lot of weight.  All FHA Back to Work Extenuating Circumstances mortgage loans are all manual underwriting mortgage loans.  With manual underwrites, the front end debt to ratio caps are normally 31% and the back end debt to income ratios are at 43%.  However, these front end and back end debt to income ratios can be exceeded at underwriters discretion if the mortgage loan borrower has compensating factors.

Housing Counseling

Another requirement for FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program is that the Back to Work mortgage loan applicant needs to take a HUD approved housing counseling course and cannot submit a mortgage application until 30 days after the completion of the HUD approved counseling certificate.  You can enter into a purchase real estate contract, however, the mortgage company cannot process and submit your mortgage application to underwriting until the 30 days has elapsed from the housing certificate date of completion.  If you are a home buyer in Illinois, Florida, Wisconsin, California, Indiana and feel you qualify for HUD’s FHA Back to Work Extenuating Circumstances due to an economic event mortgage program, please contact me at 262-716-8151 or at www.gustancho.com .

2015 Update On Mortgage Part Of Bankruptcy

There are new rules and regulations on mortgage part of bankruptcy.  If you had a mortgage part of bankruptcy, you can qualify for a conventional loan four years from the discharged date of your Chapter 7 Bankruptcy even tough your foreclosure has not been transferred out of your name.

By Gustan Cho

www.gustancho.com

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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