Qualifying For Mortgage After Deed In Lieu Versus Foreclosure

This BLOG On Qualifying For Mortgage After Deed In Lieu Versus Foreclosure Was UPDATED And PUBLISHED On July 12th, 2020

Government Loans treat deed in lieu of foreclosure, foreclosure, short sale the same way when it comes to mandatory wait period to qualify for a mortgage. There is a mandatory waiting period after housing events with government and conventional loans.

A housing event is the following:

  • Foreclosure
  • Deed In Lieu Of Foreclosure
  • Short Sale

In this article, we will discuss and cover Qualifying For Mortgage After Deed In Lieu Versus Foreclosure.

What Is A Deed In Lieu Of Foreclosure Versus Foreclosure

What are the main reasons homeowners exclude their homes

A deed in lieu of foreclosure is when a homeowner who can no longer afford their home agrees with their lender to voluntarily surrender the deed to their home in lieu of foreclosure.

  • Most lenders will help to work with homeowners who have trouble making their mortgage payments instead of foreclosing
  • Lenders normally work with homeowners by offering them a deed in lieu of foreclosure and/or short sale
  • Saves time, money, and the red tape
  • It costs a lot of money for lenders dealing with attorneys, courts, and sheriff’s department is going through the foreclosure process
  • A deed in lieu of foreclosure is more beneficial and advantageous to both lenders and homeowners

This is because lenders normally agree to forgive the outstanding debt of the mortgage loan.

Main Reasons Why Homeowners Foreclosure On Their Homes

Reasons, why homeowners foreclose on their homes, is because the mortgage is normally more than the value of their home value:

  • There is no equity
  • Selling it on the market place is not an option because the mortgage balance is higher than the home value
  • If lenders were to foreclose the likelihood of a deficit is likely
  • Lenders can go after the homeowner for the deficiency
  • However, with a deed in lieu of foreclosure, lenders will agree to forgive the homeowner the deficit
  • The homeowner surrenders the keys to the home and vacates

Homeowner agrees to surrender the deed to the home and lender will not pursue future litigation on suing the homeowner with a potential deficiency judgment.

Mortgage After Deed In Lieu Versus Foreclosure

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

Homeowners who had prior to a deed in lieu of foreclosure or foreclosures can purchase a home again after waiting for the mandatory waiting period after a deed in lieu of foreclosure or foreclosure.

  • For FHA Loans, the mandatory waiting period after a deed in lieu of foreclosure, foreclosure, a short sale is a 3 year wait period
  • VA Loans require a two year wait period after housing event
  • There is a mandatory waiting period after the recorded date of a deed in lieu of foreclosure to qualify for an FHA Loans
  • There is a mandatory waiting period after the recorded date of a standard foreclosure to qualify for an FHA loan
  • Foreclosure and deed in lieu of foreclosure are treated the same under the eyes of the Federal Housing Administration and have a 3 year wait period
  • Minimum credit scores required to qualify for FHA Loans is 580 after a deed in lieu of foreclosure or foreclosure and short sale
  • Minimum down payment required is 3.5% down payment on a home purchase as long as credit scores are at least 580

Borrowers with 500 to 579 credit scores can qualify for FHA Loans with a 10% down payment.

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

However, under the eyes of Fannie Mae and Freddie Mac there is a difference between wait periods in qualifying for Mortgage After Deed In Lieu Versus Foreclosure:

  • Deed in lieu of foreclosures and foreclosures are treated way differently for conventional loans
  • There is a 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
  • There is a four-year waiting period to qualify for VA Loans after a short sale

Minimum credit scores required is a 3% down payment and the minimum credit score required for a conventional loan after a deed in lieu of foreclosure is 620.

Alternative Financing Loan Programs With No Waiting Period After Housing Event

How to qualify for a mortgage after closing the property

Non-QM Loans is an alternative portfolio loan program that has no waiting period after housing event. Home Buyers can qualify for Mortgage After Deed In Lieu Versus Foreclosure with no waiting period. However, a 10% to 20% down payment is required. The amount of down payment depends on borrowers’ credit scores. There are no maximum loan limits with non-QM loans. There is no private mortgage insurance requirements with non-QM loans. Gustan Cho Associates Mortgage Group are direct lenders on government and conventional loans and correspondent lenders on non-qm loans.

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