Preparing For Mortgage After Bankruptcy And Foreclosure

This BLOG On Preparing For Mortgage After Bankruptcy And Foreclosure Was UPDATED On September 20th, 2017

If you had a prior bankruptcy, foreclosure, deed in lieu of foreclosure, or a short sale, there is a mandatory waiting period before a mortgage borrower can qualify for a home loan.

  • Waiting period for a bankruptcy is two years from the discharge date of the bankruptcy to qualify for FHA Loans, VA Loans, and USDA Loans. 
  • Waiting periods after foreclosure, deed in lieu of foreclosure, and short sales is 3 years from the recorded date on foreclosure and deed in lieu of foreclosure and the date of the HUD on short sales on FHA and USDA Loans and 2 years on VA Loans.
  • Waiting period is one year after bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale if you qualify for the new HUD’s Back to Work Extenuating Circumstances FHA mortgage program as long as you can document that the borrower had an economic event that caused your bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale that was a result from being unemployed or getting an income reduction of your wages of at least 20% for six months prior and it was beyond their control (FHA Back To Work has been discontinued).

Preparing For Mortgage After Bankruptcy And Foreclosure For Home Buyers

While going through the waiting period, home buyers are not allowed to put in an offer on a home until after the waiting period is officially over. Home buyers cannot start an official mortgage application until after they have a signed official real estate purchase contract by the seller and the mortgage loan originator has run an official mortgage credit report.

Advice In Preparing For Mortgage After Bankruptcy And Foreclosure

Those who recently went through a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale, there are plenty of things they can do while waiting out your waiting period to qualify for a residential mortgage loan.

  • First thing is to consult with a mortgage lender they would like to work with and have them create a soft file. 
  • Although a mortgage lender cannot process and underwrite mortgage loan application, most professional mortgage lenders will have mortgage applicants apply for a mortgage application and run a credit report on borrowers.
  • They will create a soft file like he or she is processing mortgage loan to see Preparing For Mortgage After Bankruptcy And Foreclosure. 
  • Use this waiting period to make changes to credit and financial profile. 
  • Mortgage lender might want applicant to establish more credit by advising to get secured credit cards to establish the necessary required credit tradelines required by many lenders. 
  • He will probably advise to pay rental payments with checks so rental verification can be verified. 
  • If you have outstanding judgments, he might want you to get a payment agreement with your judgment creditor and get a payment plan. 
  • Same goes for any outstanding tax liens. 
  • You can qualify for a mortgage loan with judgments and tax liens but need to have a payment agreement and a payment plan in force.

FHA Back To Work Mortgage Program Shortens Waiting Period To One Year

HUD’s new Back to Work program mandates that you need 12 months of timely payments and rental verification as well as re-established credit. However, the FHA Back To Work Mortgage Program has been discontinued. This blog is an updated blog from September 29, 2013.

  • Borrowers who have no credit tradelines will be advised to establish new credit via secured credit cards. 
  • Rental verification is one of the most important factors a mortgage lender will require. 
  • Cash rental payments do not count. 
  • Always make monthly rental payments with checks because the only way to prove timely rental payments is by providing 12 months of cancelled checks to the mortgage lender.

Start Getting Documents In Order And Monitor Your Bank Accounts

Bank statements is one of the most scrutinized documents that a mortgage underwriter will look at.  All deposits must be sourced.

  • If you make a large deposit and you want to use that deposit as part of your down payment or closing costs in your mortgage application, the mortgage lender will want to know where that money came from. 
  • If they are payroll checks, it can easily be documented. 
  • However, any out of the ordinary items over $200 must be sourced. 
  • For example, if you deposited a $5,000 check to your bank account and it was from a sale of a vehicle, the copy of the check, deposit slip, copy of bill of sale, all will be required. 
  • If you had a side job and you deposited a check from a customer, then the invoice, deposit slip, and work order needs to be documented and provided to the mortgage lender.

Another note with bank statements is that most mortgage lenders will disqualify you if you had any bank overdrafts in the past twelve months.  In the event if you did have an overdraft or two, it is not a deal killer but your mortgage loan originator needs to be very creative in providing a letter of explanation to the mortgage loan underwriter.  Multiple blatant overdrafts will be a deal killer.

If you had a foreclosure, you will be required to provide the copy of the deed of the property that vests your name out of the deed.  If you do not have this important document in your possession, you will need to contact the recorder of deeds office in the county where your property was foreclosed on in order to get this document.

Waiting Period After Short Sale

If you had a short sale, the date on the HUD Settlement Statement or the recording date of the vesting deed that is transferring the title out of your name into the buyer’s name are the dates that the clock starts ticking for the waiting period.

  • In the event if you do not have the HUD Settlement Statement from the short sale,  you can contact this paperwork from the attorneys office handling your short sale or from the title company that did the short sale.
  • If you filed for bankruptcy, you will need to provide your bankruptcy papers to your mortgage lender.  Every single page of your bankruptcy  and discharge papers needs to be provided.

Counting Down The Waiting Period

Once you have chosen a mortgage lender you want to work with, he or she will be able to pre-qualify you and tell you the maximum price range of the home you should start shopping for.  Your mortgage lender will be able to predict what mortgage amount you will get approved for and what your overall monthly housing expenses and budget will be.

Back to Work Extenuating Circumstances FHA One Year Waiting Period

The Back to Work Extenuating Circumstances FHA One Year Waiting Period after bankruptcy, foreclosure, deed in lieu, short sale will be an extremely popular extenuating circumstances program for those who have lost their jobs or had a 20% or more in household income reduction.

  • Mortgage loan borrowers who feel they qualify for HUD’s new Back to Work Extenuating Circumstances FHA mortgage loan after a one year waiting period after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale need to be able to document that they were out of work or they had a income reduction of at least 20% or more of their household income for a minimum of 6 months prior to the economic event. 
  • Certain types of documentation that is allowed include layoff notices, termination notices, pay check stubs that show the before and after income, and public or other notices that the company they used to work for is in no longer in existence. 
  • Other forms of proof include tax returns, and unemployment income.

Housing Counseling And Preparing For Mortgage After Bankruptcy And Foreclosure

Housing counseling is a mandatory requirement for those mortgage loan borrowers who want to participate in the Back to Work Extenuating Circumstances FHA mortgage loan program.   The mortgage loan borrower needs to complete a one hour HUD approved housing counseling program at least 30 days prior to them applying for a formal application and the housing counseling certificate cannot be older than 6 months old to the mortgage application or real estate purchase contract date. (Again, The FHA Back To Work Mortgage Program has been discontinued).

Qualifying For Mortgage With No Waiting Period After Bankruptcy And Foreclosure

Home buyers can now qualify for home loans with no waiting period after bankruptcy and foreclosure with NON-QM Loans.

  • However, 10% to 20% down payment is required. The down payment requirement depends on the borrower’s credit scores. 10% down payment requires 680 credit scores.
  • 660 to 679 requires 15% down payment. 640 credit scores require 20% down payment.
  • Bank Statement Mortgage Loans for self employed borrowers do not require tax returns. 24 months bank statement deposits are averaged and that is used as the monthly income.
  • With business bank statements, 50% of the deposits are used.
  • With personal bank statements, 100% of the deposits are used.

For more information on Preparing For Mortgage After Bankruptcy And Foreclosure and qualifying for a home loan, please contact The Gustan Cho Team at USA Mortgage 1-262-716-8151 or text us for faster response.

Gustan Cho NMLS ID # 873293

Related> 2015 FHA Back To Work Mortgage Lending Guidelines

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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