Mortgage Waiting Period After Bankruptcy And Foreclosure

Mortgage Waiting Period After Bankruptcy And Foreclosure

This BLOG On Mortgage Waiting Period After Bankruptcy And Foreclosure Was UPDATED On January 1st, 2019

There is a mandatory waiting period for mortgage loan borrowers to qualify for a residential mortgage loan after filing for Chapter 7 Bankruptcy.

  • To qualify for a FHA loan and VA loan, there is a mandatory two year waiting period after the discharge of a bankruptcy
  • There is a four year seasoning waiting period for conventional loans
  •  If the bankruptcy has been discharged less than two years, it is possible to obtain a home loan with non-qm loans
  • NON-QM Loans has no waiting period requirements after bankruptcy and/or foreclosure
  • USDA Rural Development mortgage loans normally have a mandatory three year waiting after a discharge of a bankruptcy

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy is a form of bankruptcy where the debtor asks the court for a repayment plan set up within a period of 3 to 5 years.

  • Chapter 13 bankruptcy shows that the debtor is willing to pay creditors at a reduced monthly amount over a period of time
  • FHA and VA will allow borrowers to purchase a home one year into a Chapter 13 Bankruptcy repayment plan with Trustee Approval
  • There is no waiting period to qualify for FHA or VA Loans from the date of discharge date of the Chapter 13 Bankruptcy
  • All payments needs to be on time during and after the Chapter 13 Bankruptcy
  • For conventional loans, borrower can qualify for a conventional loan after 2 years of the discharge date of the Chapter 13 bankruptcy
  • Can qualify for conventional loans after 4 years of the dismissal date of Chapter 13
  • There is a waiting period of 3 years after the dismissal of the Chapter 13 for USDA Rural Development mortgage loans

Qualifying For Conventional Loans After Short Sale

Fannie Mae and/or Freddie Mac classifies deed in lieu of foreclosure and short sale different than a standard foreclosure. Mortgage Waiting Period After Bankruptcy And Foreclosure is different for short sale and deed in lieu of foreclosure than it is for regular foreclosure.

  • Fannie Mae and/or Freddie Mac guidelines on qualifying for conventional loans after a standard foreclosure is a seven year waiting period from the recorded date of foreclosure
  • There is a minimum four year waiting period for Conventional loans  after short sale and/or deed in lieu of foreclosure
  • Conventional borrower can put down 5% down payment and has strong re-established credit after the short sale and/or deed in lieu of foreclosure
  • Many lenders have strict underwriting guidelines and overlays when it comes to granting a mortgage loan approval for borrower after deed in lieu of foreclosure and/or short sale
  • Most lenders have overlays
  • Example of lender overlays are higher credit scores, no late payments after the short sale, rental verification, minimum number of credit tradelines for a minimum of 12 to 24 months, reserves, and lower debt to income ratios
  • Conventional loans normally have a mandatory seven year waiting period after the recorded date of a foreclosure for a mortgage loan borrower to qualify
  • Waiting period is 7 years after foreclosure to qualify for conventional loans
  • Borrowers can qualify for a conventional loan after four years from the recorded date of the deed in lieu of foreclosure, short sale, and chapter 7 bankruptcy discharged date

VA Mortgage Waiting Period After Bankruptcy And Foreclosure

The U.S. Department of Veteran Affairs (VA) is the government agency in charge of VA Loans.

  • There is a two year mandatory waiting period after short sale, deed in lieu of foreclosure, foreclosure to qualify for VA Loans
  • In the event if the foreclosure was a prior VA mortgage loan, then the Veteran many not have the full entitlement available for the new VA mortgage loan
  • Borrower needs to check with their local VA office to see what amount of entitlement they qualify for
  • The Gustan Cho Team at Loan Cabin Inc. has no overlays on VA Loans
  • VA does not have minimum credit score requirements nor debt to income ratio caps
  • No debt to income ratio overlays:
    • We just go off findings of Automated Underwriting System

FHA Mortgage Waiting Period After Bankruptcy And Foreclosure

  • FHA treats a foreclosure and/or deed in lieu of foreclosure the same
  • FHA has a mandatory 3 year waiting period from the recorded date of the foreclosure or deed in lieu of foreclosure before a mortgage loan borrower can qualify for a mortgage loan
  • Borrowers can qualify for 3.5% down payment FHA Loans with 580 credit scores
  • Gustan Cho Associates does not have any lender overlays on government and conventional loans

No Waiting Period After Short Sale

There is no waiting period after short sale to qualify for FHA Loans if the borrower was timely on all of their mortgage payments up to date of the short sale.

  • FHA does not have a mandatory waiting period after a short sale if and only if the homeowner has been timely with all of their mortgage payment prior to the short sale
  • The proceeds of the short sale was used to serve as payment in full with the agreed price of the short sale
  • The homeowner is also required to have been current with all of his or her monthly credit obligations for the prior 12 months of the short sale
  • FHA will not allow borrowers to obtain a new mortgage after a short sale if:
    • The borrower is taking advantage of a declining market or are purchasing a similar or superior property at a reduced price within commuting distance

USDA Mortgage Waiting Period After Bankruptcy And Foreclosure

USDA Guidelines on Mortgage Waiting Period After Bankruptcy And Foreclosure is the same as those of HUD Guidelines. USDA Rural Development normally has a three year mandatory waiting period after a short sale in order for the mortgage loan borrower to qualify for a USDA Rural Development mortgage loan.

  • USDA Rural Development mortgage loans have a mandatory three year waiting period after a foreclosure and/or deed in lieu of foreclosure and short sale
  • No late payments after bankruptcy and/or foreclosure
  • Re-Established credit after bankruptcy and/or foreclosure

UPDATE: The FHA Back To Work Due To An Extenuating Event Mortgage Program no longer exists and has been discontinued.  Gustan Cho Associates will leave the FHA Back To Work Blogs published for its archives.

NEW ONE YEAR WAITING PERIOD AFTER A BANKRUPTCY AND/OR FORECLOSURE TO BE EFFECTIVE AUGUST 15, 2013

Effective August 15, 2013, the new waiting period after a bankruptcy and/or foreclosure will be one year under the FHA Back To Work Extenuating Circumstances Due To An Economic Event Mortgage Program.

  • However, many mortgage lenders will have overlays and since this is a new concept, I will keep you posted as of what overlays the various lenders will implement
  • The one year waiting period to qualify for a mortgage loan after a bankruptcy and/or short sale will open up many doors to millions of Americans
  • Not everyone who has filed bankruptcy or had a short sale a year ago will qualify but many others will qualify for this new program

The FHA Back To Work Program has been discontinued.

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