Deed In Lieu Versus Foreclosure

Deed In Lieu Of Foreclosure Versus Foreclosure

Gustan Cho Associates

A deed in lieu of foreclosure is when a homeowner who can no longer afford their home agrees with their mortgage lender that they will voluntarily surrender the deed to their home to their mortgage lender in lieu of a foreclosure .  Most mortgage lenders prefer to work with a homeowner who is defaulting on their mortgage loan by offering them a deed in lieu of foreclosure and/or short sale because it saves them time, money, and the blue tape with dealing with attorneys, courts, and sheriff’s department in going through the foreclosure process.  A deed in lieu of foreclosure is ofter more beneficial and advantageous to the homeowner because the mortgage lender normally agrees to forgive the outstanding debt of the mortgage loan.  Reasons why homeowners foreclose on their homes is because the mortgage is normally more than the value of their home value and there is no equity so selling it on the market place is not an option.  If the mortgage lender were to foreclose on the homeowners home, the likelihood of a deficit is likely and the mortgage lender can go after the homeowner for the deficiency.  However, with a deed in lieu of foreclosure, the mortgage lender will agree to forgive the homeowner the deficit.  The homeowner surrenders the keys to the home and vacates and agrees to surrender the deed to the home and the mortgage lender will not pursue future litigation on suing the homeowner with a potential deficiency judgment.

Mortgage After Deed In Lieu Versus Foreclosure

Homeowners who had prior of deed in lieu of foreclosure or foreclosures can purchase a home again after waiting the mandatory waiting period after deed in lieu of foreclosure or foreclosure.  For FHA Loans, the mandatory waiting period after deed in lieu of foreclosure and foreclosure is the same.  There is a mandatory waiting period after the recorded date of a deed in lieu of foreclosure to qualify for a FHA insured mortgage loan.  There is a mandatory waiting period after the recorded date of a standard foreclosure to qualify for a FHA loan.  Both deed in lieu of foreclosure and deed in lieu of foreclosure is treated the same under the eyes of the Federal Housing Administration. Minimum credit scores required to qualify for FHA Loans is 580 FICO after a deed in lieu of foreclosure or foreclosure and the minimum down payment required is 3.5% down payment on a home purchase as long as your credit scores are at least 580 FICO.

How Fannie Mae And Freddie Mac View Deed In Lieu Versus Foreclosure

However, not under the eyes of Fannie Mae and Freddie Mac.  Deed in lieu of foreclosures and foreclosures are treated way differently for conventional loans.  There is mandatory waiting period of 7 years from the recorded date of a standard foreclosure to qualify for a conventional loan.  However, with a deed in lieu of foreclosure, the waiting period after the recorded date of the deed in lieu of foreclosure is 4 years to qualify for a conventional loan.  Minimum credit scores required is 3% down payment and the minimum credit score required for a conventional loan after a deed in lieu of foreclosure is 620 FICO.

Related> Conventional loan after deed in lieu of foreclosure

Related> Waiting period after foreclosure

Related> What is a deed in lieu of 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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