Mortgage Waiting Period After Foreclosure And Bankruptcy

2

Mortgage Waiting Period After Foreclosure And Bankruptcy

This BLOG On Mortgage Waiting Period After Foreclosure And Bankruptcy Was UPDATED On February 3rd, 2019

Mortgage Waiting Period After Foreclosure And Bankruptcy:

The U.S. Housing and Urban Development , also known as HUD, is the parent of the Federal Housing Administration (FHA). FHA Loans are the most popular mortgage loans in the United States. There are three different types of government loans:

  • FHA Home Loans
  • VA Loans
  • USDA Loans

Fannie Mae And Freddie Mac Guidelines

Fannie Mae and Freddie Mac are the two mortgage giants that sets conventional mortgage guidelines.

  • Both government loans and conventional loans have mandatory Mortgage Waiting Period After Foreclosure And Bankruptcy
  • In order to qualify for government and/or conventional loans, borrowers need to pass a certain number of years as part of the waiting period requirements

What Are NON-QM Loans

The Gustan Cho Team at Loan Cabin Inc. has non-qm loans.  Gustan Cho Associates at Loan Cabin Inc. are direct lenders with no lender overlays on government and conventional loans. There are no Mortgage Waiting Period After Foreclosure And Bankruptcy with non-qm loans.

We are correspondent lenders on non-qm loans and bank statement loans for self employed borrowers:

  • There is no waiting period after foreclosure, deed in lieu of foreclosure, short sale with non-qm loans
  • There is a one year waiting period after Chapter 7 Bankruptcy to qualify for non-qm loans
  • Non-QM Loans normally require 20% down payment
  • The Gustan Cho Team at Loan Cabin Inc. does have a 10% down payment non-qm mortgage loan program for borrowers with at least a 680 credit score

On this blog, we will discuss the general requirements to qualify for mortgage with bad credit and the Mortgage Waiting Period After Foreclosure And Bankruptcy on the various loan programs we have available at The Gustan Cho Team at Loan Cabin Inc.

Real Estate Meltdown & Subprime Crisis

The Great Recession of 2008 completely changed everything in the mortgage business. No doc and state income loans, once very popular, vanished completely overnight. The SAFE ACT was created and implemented. The powerful CFPB was created as the top government regulatory agency. Countless of mortgage rules and regulations went into effect.

  • The real estate and credit collapse of 2008 has caused millions of homeowners and hardworking American workers financial hardship
  • Never in history did a Recession affect so many Americans and their families
  • The Great Recession of 2008 forced countless of Americans into bankruptcy and/or foreclosure due to being terminated from their jobs or losing their businesses

Historical Foreclosures And Bankruptcies

Never in the history of the United States has the Great Recession of 2008 affected so many American workers and businesses.

  • Bankruptcies and foreclosures have soared to historical levels
  • Many American workers today are in jobs where they are over qualified and are still underemployed
  • HUD realized this and have launched the ill fated FHA Back to Work Extenuating Circumstances due to an economic event mortgage program back in August 15, 2013 which turned out to be a major disaster
  • This program shortened the waiting period to one year after someone has filed a bankruptcy and/or after a housing event
  • Deed in lieu of foreclosure as well as short sales fall into this category

Disappointment With FHA Back To Work Mortgage

  • Those who had a deed in lieu of foreclosure and/or short sale looked forward in becoming homeowners again with HUD’s FHA Back to Work extenuating circumstances due to an economic event mortgage program if they met HUD’s Back to Work mortgage lending guidelines
  • All Back to Work mortgage loan program are manual underwrites and not all lenders offer it
  • This loan program should have never been created
  • Tens of thousands of borrowers applied but only a fraction got conditional loan approvals
  • Only a tiny fraction of those with conditional approvals on the back to work mortgage eventually closed on their FHA Loans
  • Never in history has a loan program turn out to be such a major disaster and flop
  • The program was shut down and only lasted less than 18 months

Traditional Mortgage Waiting Period After Foreclosure And Foreclosure

The traditional Mortgage Waiting Period After Foreclosure And Bankruptcy is still in effect on government and conventional loans: The number of years on Mortgage Waiting Period After Foreclosure And Bankruptcy depends on the type of loan program:

  • The waiting period for those who had filed a prior bankruptcy is two years from the discharge date of Chapter 7 bankruptcy to qualify for a FHA, VA, USDA Loans
  • There is a four year waiting period to qualify for a conventional mortgage loan after the discharge date of Chapter 7 Bankruptcy
  • Borrowers can qualify for Conventional Loans four years after deed in lieu of foreclosure and/or short sale
  • The waiting period is three years from the recorded date of a foreclosure or a deed in lieu of foreclosure to qualify for a FHA and USDA Loans
  • For those who filed a foreclosure, the waiting period is seven years for them to qualify for conventional loans
  • Those who had a deed in lieu of foreclosure, the waiting period is two years to qualify for VA Home Loans
  • The waiting period is three years from the HUD’s Settlement statement for those who had a prior short sale to qualify for FHA and USDA Loans

Does Waiting Out The Mortgage Waiting Period After Foreclosure And Bankruptcy Guarantee Mortgage Approval?

The above answer is NO.

  • Just because you have waited out the waiting period does not guarantee you a mortgage approval by any means
  • In order to get an approve eligible per Fannie Mae’s Automated Underwriting System or Freddie Mac’s Automated Underwriting System, the mortgage loan applicant need to prove that they have had re-established credit
  • Many of those who had an economic event and had to file bankruptcy and/or had a prior foreclosure or short sale want to stay away from credit and only deal in cash
  • Unfortunately, this practice is not accepted in the mortgage lending industry

Re-Establishing Credit After Bankruptcy And Foreclosure

All lenders want home buyers and first time home buyers that they have re-established credit after their bankruptcy and/or foreclosure and wants to see at least three credit tradelines established.

  • A credit tradeline is an established credit account such as the following:
    • credit card account
    • department store account
    • installment loans
    • revolving credit accounts
    • auto loan account
  • To be considered a credit tradeline, the credit accounts needs to have been seasoned for at least 12 or more months
  • Late payments are frowned upon after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale
  • One late payment after bankruptcy and/or housing event can be a deal killer depending on the lender

Rental Verification Is Extremely Important

For those living rent free with family, there is nothing they can do but for those who are paying rent from renting a home or apartment, rental verification is one of the most important factors if you want a home loan with bad credit.

  • Rental verification is proven by providing 12 months worth of cancelled checks that is paid to private landlord
  • Renters legitimately renting an apartment or home but are paying with cash and get cash receipt, the lender will not consider any cash rental payment as proof of rental verification even though they have a receipt from the landlord
  • Partial cash payment and partial check payments cannot be used to prove rental verification
  • It needs to be 12 months of cancelled checks and/or 12 months bank statements

Verfication Of Rent From Property Management Company

However, if landlord is a registered property management company and renters are paying them in cash, a letter from the property manager stating that they have been timely with rent payments for the past 12 or more months can be used as proof of rental verification. The lender will provide a VOR FORM which the property manager needs to complete, date, and sign:

  • Again, that is only if it is a registered licensed property management company
  • Rental verification is extremely important because of payment shock
  • Mortgage loan underwriters take the fact that if borrowers have no rental verification, payment shock from paying zero rent to new mortgage payment will reflect a payment shock
  • They like to see, for example, that borrowers are paying $1,000 in rent and that new mortgage payment will be the same or no more than 5% or so increase so they do not have payment shock
  • One Year Waiting Period After Chapter Bankruptcy is the waiting period on non-qm loans

As mentioned earlier, HUD’s new FHA Back to Work extenuating circumstances due to an economic event shortened the waiting period to one year waiting period after foreclosure and bankruptcy. However, this loan program turned out to be a major disaster and HUD discontinued it.

  • Back to Work lenders wanted to see that after borrowers filed bankruptcy and/or had a foreclosure, deed in lieu of foreclosure, or short sale that they had re-established credit
  • By re-established credit, it means no late payments whatsoever after foreclosure, bankruptcy, deed in lieu of foreclosure, or short sale

The Gustan Cho Team at Loan Cabin Inc. launched non-qm loans last year where there is no waiting period after foreclosure, deed in lieu, short sale. There is a one year waiting period after Chapter 7 Bankruptcy discharged date.

Re-Establishing Credit After Housing Event And/Or Bankruptcy

  • Secured credit cards are the best tools to the road of good credit
  • Those who recently filed bankruptcy, foreclosure, short sale, or deed in lieu of foreclosure, should get three $500 credit limit secured credit cards as soon as possible
  • Those three credit cards will improve credit the minute they get it
  • As credit card payment history ages, credit will get better and better

Secured Credit Cards Are Best Way Of Re-Establishing Credit

There are many cases where people have credit scores of 700 one year after filing bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale by just getting three secured credit cards and effectively using those credit cards and paying off the credit balances each month.

  • After one year of having and using the three secured credit cards, consumers will be able to secure unsecured credit cards and other credit such as department store credit cards and installment loans

Bad Credit Mortgage Loans

Borrowers can qualify for mortgage after period of bad credit, bankruptcy, and/or housing event: Most lenders do not want to see any late payments in the past 12 months. Borrowers can have bad credit, outstanding collections, charge off accounts, late payments, however, borrowers need to have been timely in the past 12 months to qualify for any home loans. Most lenders do not want to see any late payments after bankruptcy and/or housing event. One or two late payments is not a deal killer but consistent derogatory payment history after bankruptcy and/or foreclosure can be a deal killer.

  • Provide a detailed letter of explanation describing extenuating circumstances due to an economic event
  • Credit must have been good to excellent and have dropped due to the loss of your job or business
  • Manual underwriting have lower debt to income ratio requirements
  • The front end debt to income ratios need to be at 31% and the back end debt to income ratios are normally capped at 43%
  • These debt to income ratios can exceed the recommended mark as long as the borrower has compensating factors
  • Examples of compensating factors include substantial reserves, larger down payment, and rental verification

Qualifying For Mortgage Waiting Period After Foreclosure And Bankruptcy With Direct Lender With No Overlays

Home Buyers who need to qualify for a mortgage with a direct lender with no overlays on government and conventional loans, please contact us at The Gustan Cho Team at Loan Cabin at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are correspondent lenders on non-qm loans and bank statement loans for self employed borrowers.

Gustan Cho Associates has alternative financing loan programs such as the following:

  • Condotel Financing
  • Non-Warrantable Condo Loans
  • FHA and VA Loans during Chapter 13 Bankruptcy Repayment Plan
  • No waiting period after recent Chapter 13 Bankruptcy discharged date on VA and FHA Loans
  • Manual Underwriting
  • ZERO OVERLAYS on FHA, VA, USDA, Conventional Loans

We are available 7 days a week, evenings, weekends, and holidays.

By Gustan Cho

www.gustancho.com

This BLOG On Mortgage Waiting Period After Foreclosure And Bankruptcy Was UPDATED On February 3rd, 2019

2 Comments
  1. Bunna Chu says

    Hi,

    I’m trying to get pre-approve for a mortgage, however, I’m not sure if I am qualified to do so yet. As in Oct 2014, we had filed for bankruptcy, chapter 7 and our home was foreclosed on 11/2017. My home was included in our bankruptcy, however, in our petition file the “reaffirmed debt” was check off as we had the intention to stay in the home. However, we never signed or enter an agreement with our mortgage company to reaffirmed this debt to make it official. I’m also only on the title and my husband is on the mortgage. My credit report does not list this property but it’s on my husband credit report as discharge through bankruptcy. I’m confuse as to when my waiting period starts, date of foreclosure or bankruptcy? I’m trying to plan ahead and see how I need to proceed. Please advise.

    Your help is greatly appreciate!

    Thanks

    Bunna

    1. Gustan Cho, NMLS 873293 says

      There is a four year waiting period from the discharged date of the Chapter 7 bankruptcy if you had a mortgage included in the bankruptcy. Unfortunately, you cannot reaffirm the mortgage. The foreclosure date is fine and does not matter if the mortgage was not reaffirmed. Good news is that you can qualify for a mortgage but not your husband. We have non-qm loans where there is no waiting period after foreclosure, bankruptcy that your husband may qualify. Can you email me your contact information and best time to call you at gcho@gustancho.com or text me on my cell at 262-716-8151. Lets go over the various options you may have. What state are you buying a home?

Leave A Reply

Your email address will not be published.

CALL NOW