Mortgage Waiting Period After Bankruptcy And Foreclosure

This BLOG On Mortgage Waiting Period After Bankruptcy And Foreclosure Was UPDATED On August 27th, 2017

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 at least one year and less than two years, it is possible to obtain an FHA or VA mortgage, however, you should not bank on it because it is extremely difficult and I have never seen a case where a mortgage loan borrower was able to get a mortgage loan approval prior to them waiting out the two year mandatory waiting period.   
  • It must be documented that the bankruptcy was due to an extenuating circumstances such as a job loss, national disasters, and major medical emergencies. 
  • USDA Rural Development mortgage loans normally have a mandatory three year waiting after a discharge of a bankruptcy but the mortgage loan borrower can get a mortgage loan approval if he or she can document that the cause of the bankruptcy was due to extenuating circumstances such as a job loss, national disasters or act of nature or major medical emergencies.

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, a mortgage loan borrower can qualify for a conventional loan after 2 years of the discharge date of the Chapter 13 bankruptcy and after 4 years of the dismissal date.  
  • 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 mortgage loan 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 those mortgage loan borrower after deed in lieu of foreclosure and/or short sale.
  • Most lenders have overlays .
  • Example of lender overlays are higher credit scores, no lates 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. 
  • A mortgage loan borrower 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. 
  • The 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 USA Mortgage has no lender overlays on VA Loans.
  • Minimum credit scores of 580
  • 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.
  • The Gustan Cho Team at USA Mortgage 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 Mortgage & Real Estate Information Resource Center 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.

Related> Qualifying For Mortgage After Bankruptcy And Foreclosure

Related> 2015 Guidelines On Waiting Period After Bankruptcy And Foreclosure

Related> 2015 Guidelines On Mortgage After Bankruptcy

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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