Purchasing a Home After Bankruptcy or Short Sale or Foreclosure: Mandatory Waiting Periods

FHA Loans After Bankruptcy

Purchasing a Home After Bankruptcy or Foreclosure or Short Sale

The real estate and credit collapse of 2008 has affected millions of homeowners in not just the burst of the housing bubble but also with massive layoffs or major reduction in business for business owners. The drastic loss of income forced many homeowners to downsize to smaller homes but due to the real estate meltdown. Most homeowners lost all of their equity in their homes and had mortgage loans that were higher than the value of their homes.

Real Estate and Mortgage Meltdown of 2008

As a result of this financial disaster, which many believe it was the second great depression, a substantial percentage of homeowners were forced into bankruptcy, foreclosure, or short sale. Purchasing a home after bankruptcy or short sale or foreclosure is definitely possible. There are certain waiting periods to qualify for purchasing a home after bankruptcy or short sale or foreclosure.

What is a Short Sale?

A short sale is a preforeclosure sale of the home in lieu of foreclosure proceedings which results in a mortgage loan payoff amount of less than the total amount owed to the mortgage lender and which has been preapproved by the mortgage lender holding the mortgage.

Conventional mortgage loan requirements for purchasing a home after bankruptcy, short sale, or foreclosure differs than those of other mortgage loan programs like FHA insured mortgage loans and VA guaranteed mortgage loans.  To qualify for a conventional home loan backed by Fannie Mae, the following conventional mortgage loan waiting guidelines apply.

How Long Should I Wait After a Short Sale?

Two year waiting period in order to apply for a conventional mortgage loan after a short sale if the home buyer can put 20% down payment so that the loan to value is 80%.  There is a 4 year waiting period in order to apply for a conventional mortgage loan if the home buyer can put at least a 10% down payment so that the loan to value ratio is at least 90%.  There is a 7 year waiting period in order to qualify a mortgage loan borrower to qualify for a conventional mortgage loan if the home buyer puts a down payment of less than 10% down payment which yield a loan to value of greater than 90%.

Qualifying for Conventional Loan After Bankruptcy

For conventional mortgage loans backed by Freddie Mac, a mortgage loan qualifies for a conventional mortgage loan after a waiting period of 4 years regardless of loan to value.

To qualify for a FHA insured mortgage loan after a short sale, the waiting period is 3 years from the date of the short sale.

To qualify for a VA mortgage loan after a short sale, the waiting period is 2 years from the date of the short sale in order to qualify for a VA mortgage loan.

To qualify for a conventional mortgage loan after a foreclosure, the waiting period is 7 years from the date of the sheriff’s sale or the date the deed of the home was transferred out of the mortgage loan borrower’s name and into the mortgage lender’s name.

To qualify for a FHA insured mortgage loan after a foreclosure, there is a 3 year waiting period in order to qualify for a FHA insured mortgage loan.  If the mortgage loan that was secured by the foreclosed home was not a FHA mortgage loan, the time frame of the foreclosure is the date of the foreclosure completion date.  In the event if the mortgage loan that was secured by the foreclosed home as a prior FHA mortgage loan, the three year time clock is the date the Federal Housing Administration compensated the FHA insurance claim.

In order to be able to qualify for a VA mortgage loan after a foreclosure, there is a 2 year waiting period.

Conventional Loan After Bankruptcy

Purchasing a home after bankruptcy or short sale or foreclosure is possible.  If a mortgage loan borrower has filed a bankruptcy, there is a 4 year waiting period for the mortgage loan borrower to be able to qualify for a conventional mortgage loan.  If a mortgage loan borrower has filed a Chapter 13 bankruptcy, there is a 2 year waiting period from the discharged date or 4 years from the dismissal date of the Chapter 13 bankruptcy.

FHA Loan After Bankruptcy

To qualify for a FHA mortgage loan after a bankruptcy, there is a 2 year waiting period from the discharge date of the bankruptcy.  To be able to qualify for a FHA insured mortgage loan after a Chapter 13 reorganization bankruptcy the following requirements apply.

  • 1. The mortgage loan borrower needs to show proof and document that all payment to creditors have been made on a timely basis.
  • 2. Wait one year from the date the payment plan has elapsed.
  • 3. If the mortgage loan borrower is still in an active payment plan under the Chapter 13 bankruptcy, the borrower needs permission by the bankruptcy court to enter into the new mortgage loan.
  • 4. In the event if the mortgage loan borrower is currently paying his or her creditors under the Chapter 13 payment plan, their monthly debt repayment amount needs to be used in qualifying for their debt to income ratio.

VA Loan After Bankruptcy

For a VA mortgage loan, the waiting period is 2 years after a Chapter 7 bankruptcy.  The requirements for a VA mortgage loan after a Chapter 13 bankruptcy, a mortgage loan borrower needs to have entered into a payment plan for one year with all monthly payments made timely.  The permission of the Bankruptcy court is required to enter into the new mortgage loan.

If you are interested in purchasing a home after bankruptcy or short sale or foreclosure in Californina, Illinois or Florida, please contact me at 262-716-8151 or email me at gcho@gustancho.com.  You can also visit me at www.gustancho.com.

Related> 2015 Guidelines on Mortgage After Bankruptcy

Related> Mortgage After Bankruptcy: 2015 Guidelines

Related> Qualifying for Mortgage After Bankruptcy and Foreclosure

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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