Advice On Buying A Home After Bankruptcy, Foreclosure, Deed In Lieu Of Foreclosure, And Short Sale

The real estate and mortgage meltdown of 2008 has struck this country and the world like a category 5 hurricane and have affected the massive depreciation of real estate market values as well as massive layoffs and company shutdowns have resulted in many homeowners and American workers have their own financial crisis.  Never in history has a recession affected so many Americans.   Bankruptcies were filed left and right and every American family knows of friends and family who have filed bankruptcy or have fell behind on their monthly payments where it really affected their credit scores.  Others have lost their homes via foreclosure, deed in lieu of foreclosure, or short sale.

If you are one of those Americans who fell victim to the real estate and credit meltdown of 2008, you may be wondering when you can requalify to be a homeowner again.  I will cover on this mortgage blog post what the federal guidelines are for you to requalify for a residential mortgage loan.

Qualifying For A Mortgage Loan After A Prior Short Sale

A short-sale, also known as a pre-foreclosure real estate sale, is the sale of a residential property in lieu of a foreclosure which results in a mortgage payoff that is less than the original amount owed or the current balance which is approved by the mortgage lender.

To qualify for a conventional mortgage loan after a homeowner had a prior short-sale, the following waiting period guidelines by Fannie Mae will apply.

  • Two year waiting period for a mortgage loan with a maximum LTV, also known as loan to value,  of 80%.   What this means is that the home buyer needs to put a 20% down payment.
  • There is a 4 year waiting period from the date of the short-sale if you can put a 10% down payment down with a maximum LTV, or loan to value, of 90%.  This means that the home buyer needs to put a 10% down payment.
  • There is a 7 year waiting period for a conventional mortgage loan with a loan to value, LTV, less than 90%.  This means for those conventional mortgage loan seekers, they need a down payment of at least 5% down payment and less than 10% down payment for them to qualify for a conventional mortgage loan.

For conventional mortgage loan that is backed by Freddie Mac, there is a 4 year waiting period after the date of the short-sale.

Qualification Requirements Ror FHA Insured Mortgage Loan After A Short Sale

To qualify for a FHA insured mortgage loan after a short-sale, a home buyer has a mandatory 3 year waiting period unless they qualify for FHA Back to Work Extenuating Circumstances due to an economic event.  If the home buyer qualifies for the FHA Back to Work Extenuating Circumstances due to an economic event, then there is a one year mandatory waiting period after a short sale, deed in lieu of foreclosure, foreclosure, or bankruptcy.

Qualification Requirements For VA Mortgage Loan After Prior Short Sale

There is a mandatory waiting period of two years after a prior short-sale for a home buyer to qualify for a VA mortgage loan.

Qualification Requirements For Mortgage After Homeowner Has Prior Foreclosure

To qualify for a conventional mortgage loan after a prior foreclosure, there is a mandatory 7 year waiting period after the date of the sheriff’s sale or the date the deed was transferred out of the name of the homeowner to the name of the lender.

To qualify for a FHA insured mortgage loan, there is a mandatory 3 year waiting period from the date of the sheriff’s sale or the date the deed was transferred out of the homeowners name into the name of the mortgage lender or owner of record unless the home buyer qualifies for the new FHA Back to Work Extenuating Circumstances due to an economic event.  If this is the case, then there is a mandatory one year waiting period after a foreclosure, deed in lieu of foreclosure, short sale, or bankruptcy.

  • If the FHA insured mortgage loan has been secured by the foreclosed residential property by a FHA insured mortgage loan, the three year mandatory waiting period time frame starts from the actual date FHA paid the lender the insurance claim.
  • Time share mortgage loans that have been foreclosed does not count as a foreclosure and has no mandatory waiting period.

For VA mortgage loans, the mandatory waiting period after a homeowner has had a prior foreclosure is two years from the date of the sheriff’s sale or the date the deed was transferred out of the homeowner’s name into the name of the mortgage lender.

Qualification Requirements For Residential Mortgage Loan After Homeowner Has Filed Prior Bankruptcy

The qualification requirements to apply for a conventional mortgage loan after he or she has filed a bankruptcy is 4 years from the discharge date of the bankruptcy.  For a Chapter 13 bankruptcy filing, the mandatory waiting period is 24 months from the filing date and 48 months from the dismissal date of the Chapter 13 bankruptcy.

The qualification requirements for a home buyer to qualify for a FHA insured mortgage loan after a prior bankruptcy, the mandatory waiting period is 2 years from the discharge date of the Chapter 7 bankruptcy unless the home buyer qualifies for the FHA Back to Work Extenuating Circumstances due to an economic event in Illinois, Florida, California, Indiana, and Wisconsin.  If this is the case, the waiting period is one year from the discharge date of the bankruptcy.

The qualification requirement to qualify for a FHA insured mortgage loan after the homeowner files a Chapter 13 bankruptcy is the following:

  • Borrower needs to document at minimum of at least one year into the planned bankruptcy payment plan has passed.
  • Provide documentation that all payment plans to the creditors have been made on time without any late payments.
  • In the event if the mortgage loan borrower is still in a Chapter 13 repayment plan, the mortgage loan borrower needs to get permission by the courts in order to enter in a new mortgage.
  • In the event if the mortgage loan borrower is still in a repayment plan on his or her Chapter 13, the overall monthly repayment amount will be included in qualifying for the borrower’s overall debt to income ratios.

The qualification requirements to obtain a VA loan after a prior bankruptcy filing, the mandatory waiting period is two years from the discharge date of the bankruptcy.  The qualification requirement for a mortgage borrower who has filed a prior Chapter 13 bankruptcy, the mortgage loan borrower needs a one year payment plan and all monthly payments needed to be paid on time.  The permission of the courts granting approval in the borrower entering into a new residential mortgage loan is mandatory as well.

2015 Update On Qualifying For Conventional Loan After Deed In Lieu And Short Sale

New Fannie Mae Guidelines came effective last August 15, 2015 on qualifying for a conventional loan after a deed in lieu of foreclosure and short sale.  The two year waiting period to qualify for a conventional loan after deed in lieu of foreclosure and short sale with 20% down payment no longer is effective.  New guidelines to qualify for a conventional loan after deed in lieu of foreclosure and short sale is 4 years from the recorded date of the deed in lieu of foreclosure and/or short sale with a minimum 5% down payment.

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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