It might be interesting to update everyone on the latest guidelines on required waiting periods after a Bankruptcy, Foreclosure or Short Sale. The rules seem to change fairly often and, of course, may vary greatly with lenders and mortgage investors.
For conventional financing, basic guidelines at this time show a waiting period of four years after a Chapter 7 or 11 Bankruptcy, two years with extenuating circumstances; after a Chapter 13 Bankruptcy, it would be two years from the Discharge date, four from Dismissal date (two from Dismissal with justifying circumstances). A Foreclosure on your record would mandate a seven-year waiting period, three with extenuating circumstances but with additional restrictions as to the maximum loan-to-value allowed and occupancy of the property. A Short Sale or Deed-in-Lieu on a person’s credit requires a waiting period of at least two years for an 80% loan-to-value and four for 90%, two with mitigating circumstances can be possible up to 90%.
FHA and VA requirements may be considerably different. For example, if a person had a Chapter 7 Bankruptcy, the usual waiting period would be two years for FHA, but under some circumstances it could be moved down to just one, not with VA though. Many factors must be clearly illustrated, including either no new debt since discharge or re-establishment and maintenance of good credit plus a demonstrated ability to manage one’s financial obligations. A new purchase after a Chapter 13 Bankruptcy (where debts are being paid over time) has different guidelines also, primarily being that the Bankruptcy has been in a payout period for at least one year, with satisfactory performance and Court approval. Foreclosures and short sales generally mandate three years with FHA, two with VA.
These are some of the lending policies, but of course a person must also qualify for the new loan – income, stability of same, debt ratios and credit scores are critical. We must measure that with the basic question of whether a person is ready to purchase again and take on ownership responsibilities. Working with an experienced, professional mortgage advisor should be very helpful if you find yourself in this kind of situation.
Karen Lee Davis is the Vice President and Regional Manager for The Mortgage House, Inc. She can be contacted at Karen@themortgagehouse.com or (951) 695-2727.