Qualifying For Conventional Loan After Foreclosure And Bankruptcy

This BLOG On Qualifying For Conventional Loan After Foreclosure And Bankruptcy Was UPDATED And PUBLISHED On June 29th, 2020

How to qualify for a traditional loan after foreclosure and bankruptcy

Qualifying for Conventional Loans After Foreclosure and Bankruptcy are much tougher than qualifying for government loans.

  • Homebuyers can qualify for a conventional loan after foreclosure and bankruptcy
  • There are mandatory waiting period requirements
  • To qualify for a conventional loan, borrowers need a minimum credit score of 620
  • Debt to income ratios cannot exceed 50% DTI
  • Need timely payments for the past 12 months with no late payments

In this article, we will discuss and cover Qualifying For Conventional Loan After Foreclosure And Bankruptcy.

Fannie Mae And Freddie Mac Guidelines

Fannie Mae will do allow any non-occupant co-borrowers to be added on the conventional loan:

  • Freddie Mac also does allow non-occupant co-borrower to be added
  • Homebuyers can qualify for a 3% down payment conventional home purchase loan only if they are a first time home buyers
  • First time home buyers for 3% down payment home purchase are those who have not owned a home for the past least three years
  • Conventional Loan Programs can be used for single-family homes, condominiums, and two to four-unit properties

Buyers can purchase owner-occupied properties, second homes, and investment homes with conventional loans.

Waiting Period In Qualifying For Conventional Loan After Foreclosure

Unfortunately, the waiting period in qualifying for a conventional loan after a foreclosure is seven years from the recorded date the foreclosure.

  • The recorded date is the key term
  • The waiting period start date is not the date homeowners surrendered keys and signed the foreclosure paperwork with the lender
  • The recorded date of the foreclosure is the date is either the date of the sheriff’s sale or the date that the deed was transferred out of homeowners name into the name of the lender or the name of a new buyer
  • Needs to be recorded with the county recorder of deeds’ office and stamped
  • There are cases where homeowners have surrendered the keys to their home and voluntarily walked out of the home and thought that the foreclosure process was over
  • However, they later find out that the transfer of their name did not happen until many years later

The waiting period in qualifying for conventional loan after foreclosure did not even start.

Mortgage Part Of Bankruptcy

What is the mortgage part of bankruptcy

Homeowners with mortgage included in the bankruptcy, the waiting period in qualifying for conventional loan after foreclosure is four years from the discharge date of Chapter 7 Bankruptcy.

  • It is not the recorded date of the foreclosure even though the foreclosure did not get recorded after the discharged date of the bankruptcy
  • This new Fannie Mae guidelines of qualifying for conventional loan after foreclosure went into on August 2014
  • This new conforming guideline has opened up many doors for homebuyers who had included their mortgage part of the bankruptcy
  • Mortgage cannot be reaffirmed after bankruptcy

This guideline applies to both Chapter 7 and Chapter 13 Bankruptcy.

Waiting Period In Qualifying For Conventional Loan After Deed In Lieu Of Foreclosure

FHA treats foreclosures and deed in lieu of foreclosures the same way.

  • There is a three year waiting period in qualifying for FHA Loan After Foreclosure and Deed In Lieu of Foreclosure from the recorded date or the date of the sheriff’s sale

However, with conventional loans, there is a four year waiting period in qualifying for conventional loan after deed in lieu of foreclosure from the recorded date of the deed in lieu of foreclosure.

Waiting Period Qualifying For Conventional Loan After Short Sale

To qualify for a conventional loan after a short sale, there is a four year waiting period from the date of the short sale which is reflected from the date of the HUD Settlement Statement of the short sale.

  • There is a three-year waiting period to qualify for FHA Loans after a short sale
  • VA requires a two year waiting period after a short sale
  • USDA requires a three year waiting period
  • Most Jumbo lenders require a 7 year waiting period after foreclosure, deed in lieu of foreclosure, short sale, and bankruptcy

However, Gustan Cho Associates has non-QM loan programs where there is no waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale.

Recap On Qualifying For Conventional Loan After Foreclosure And Bankruptcy Versus Government Loans

What is the summary of eligibility for conventional loans after foreclosure and bankruptcy versus government loans

Here is the recap on qualifying for conventional loan after foreclosure and bankruptcy versus government loans:

There is a four year period to qualify for conforming loans after a deed in lieu of foreclosure and short sale:

  • FHA and USDA requires a three-year waiting period to qualify after foreclosure, deed in lieu, short sale
  • VA requires a two-year waiting period after Chapter 7 Bankruptcy, foreclosure, deed in lieu of foreclosure, short sale

There is a seven-year waiting period after a standard foreclosure to qualify for conforming loans:

  • Government loans do not have different waiting period requirements after foreclosure versus deed in lieu and/or short sale

There is a four-year waiting period to qualify for conforming loans after Chapter 7 Bankruptcy discharged date

There is a two year waiting period after Chapter 13 Bankruptcy discharged date to qualify for conforming loans:

  • VA and FHA allows borrowers in a current Chapter 13 Bankruptcy repayment plan with Trustee Approval via manual underwriting
  • VA and FHA does not require any waiting period to qualify after Chapter 13 Bankruptcy discharged date
  • Any VA and/or FHA Loans with less than 2-year seasoning after Chapter 13 Bankruptcy discharged date needs to be downgraded to manual underwriting

There is a four year waiting period after Chapter 13 Bankruptcy dismissal date to qualify for conforming loans

Borrowers who need to qualify for a mortgage with a national direct lender with no overlays on government and conventional loans can contact Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com.

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