Fannie Mae Bankruptcy and Foreclosure Guidelines
This guide will cover Fannie Mae bankruptcy and foreclosure guidelines The Fannie Mae bankruptcy and foreclosure guidelines require a mandatory waiting period for homebuyers seeking a conventional loan. There are two different waiting period requirements depending on the type of Bankruptcy. Dale Elenteny of Gustan Cho Associates explains the role of Fannie Mae and Freddie Mac when it comes to conventional loans as follows:
Fannie Mae and Freddie Mac are the two mortgage giants in the United States that set mortgage lending guidelines on Conventional loans. Conventional loans are called conforming loans because they need to conform to the Fannie Mae And Freddie Mac Guidelines. Every mortgage loan program has its lending guidelines for qualifying for a home loan after bankruptcy or a housing event. HUD, the parent of FHA, is in charge of setting HUD guidelines after bankruptcy and foreclosure.
Fannie Mae and Freddie Mac created and implemented the Fannie Mae bankruptcy and foreclosure guidelines for Conventional Loans. Fannie Mae bankruptcy and foreclosure guidelines require a waiting period after bankruptcy and foreclosure and a deed-in-lieu of foreclosure and short sale.
Bankruptcy Guidelines:
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Chapter 7 Bankruptcy:
Fannie Mae has specific waiting periods for borrowers who have filed for Chapter 7 bankruptcy. Typically, borrowers must wait four years from the discharge or dismissal date of the Chapter 7 bankruptcy before they are eligible to apply for a conventional mortgage loan through Fannie Mae. In certain cases, the waiting period may be reduced to two years if the borrower can document extenuating circumstances that led to the bankruptcy.
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Chapter 13 Bankruptcy:
Individuals who have initiated a Chapter 13 bankruptcy proceeding might qualify for a Fannie Mae mortgage even before the bankruptcy process concludes. To be eligible, borrowers must have made at least 12 months of on-time payments under the Chapter 13 repayment plan. They must also obtain written permission from the bankruptcy court or trustee to take on new debt, such as a mortgage.
Fannie Mae Bankruptcy And Foreclosure Guidelines Waiting Period Requirements
Homebuyers can qualify for a Conventional loan after a Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. There are mandatory waiting period requirements to qualify for a conventional loan after each type of bankruptcy. With a Chapter 7 Bankruptcy, the waiting period is four years from the discharge date of the Chapter 7 Bankruptcy. There is a two-year mandatory waiting period to qualify for a Conventional Loan After A Chapter 13 Bankruptcy discharge date.
Learn More about Fannie Mae Bankruptcy and Foreclosure Guidelines
Fannie Mae and Freddie Mac Guidelines on Late Payments After Bankruptcy and Foreclosure
Most Lenders do not want to see any late payments after bankruptcy and re-established credit and a few solid credit tradelines. Tradelines are not Fannie/Freddie Guidelines but are lender overlays instituted by each lender. Gustan Cho Associates have no overlays on government and conventional loans.
There are minimum credit score requirements to qualify for FHA loans. HUD requires a 580 credit score to qualify for a 3.5% down payment home purchase FHA loan. Borrowers with credit scores under 580 and down to 500 FICO require a 10% down payment. VA loans does not have a minimum credit score requirements on VA loans.
The minimum credit score required to qualify for a conventional loan is 620. A prior bankruptcy or foreclosure does not affect mortgage rates on a conventional loan. Conventional mortgage rates are determined by a borrower’s credit score, loan-to-value, and property type. The lower the loan to value, the lower the conventional mortgage rates.
Fannie Mae Bankruptcy And Foreclosure Guidelines Waiting Period Requirements
With FHA loans, the waiting period after a foreclosure, deed-in-lieu of foreclosure, and a short sale are all the same. The three-year waiting period after the recorded date or sheriff’s sale of foreclosure or deed-in-lieu of foreclosure to qualify for an FHA loan. There is a three-year waiting period after the short sale date reflected on the HUD-1 Settlement Statement to qualify for FHA loans.
There are mandatory waiting period after bankruptcy and foreclosure on government and conventional loans. The waiting period requirements after bankruptcy and foreclosure depends on the individual mortgage program.
VA loans have a two-year waiting period after Chapter 7 bankruptcy, foreclosure, deed-in-lieu, or short Sale. Conventional loans differ with the waiting period after foreclosure versus deed-in-lieu of foreclosure or short sale. There is a 7-year waiting period after the recorded foreclosure date or the date of the sheriff’s sale on a regular foreclosure. There is a four-year waiting period to qualify for a Conventional loan after the recorded date of a deed-in-lieu of foreclosure. There is a four-year waiting period from the short sale date, reflected on the HUD-1 Settlement Statement.
Talk to One of Our Expert Loan Officers.
Fannie Mae Bankruptcy And Foreclosure Guidelines on Mortgage Part Of Bankruptcy
A great advantage of Fannie Mae and Freddie Mac when it comes to qualifying for a Conventional Loan is that for borrowers with mortgages part of bankruptcy, there is only a four-year waiting period from the discharge date of Chapter 7 Bankruptcy. The waiting period is four years from the discharge date, even though foreclosure is not recorded after a later date. This is often the problem when people have a mortgage part of Chapter 7 Bankruptcy.
Mortgage Guidelines on Waiting Period Start Date After Foreclosure
The mortgage lender is not in a major hurry to transfer the title from the homeowner’s name to the lender’s. With HUD, the rules are different. HUD requires a three-year mandatory waiting period from the recorded foreclosure date if homeowners had a mortgage part of Chapter 7 Bankruptcy. Dale Elenteny of Gustan Cho Associates explains the waiting period start date when you have a mortgage included in bankruptcy:
Borrowers with mortgage part of Chapter 7 Bankruptcy on January 10, 2014, and the foreclosure was not recorded until January 10, 2018, would qualify for Conventional loans because they have met the four-year waiting period after the discharge date. The fact that the foreclosure was not recorded until January 10, 2018, does not matter.
Fannie Mae and Freddie Mac have a four-year mandatory waiting period from the discharge date of Chapter 7 Bankruptcy which the borrowers met the waiting period requirements. The four years were up on January 10th, 2018. The recorded date of the foreclosure of January 10, 2018, does not matter for Conventional loans.
VA Guidelines To Mortgage Included In Bankruptcy
VA guidelines on VA loans are the same as Fannie Mae bankruptcy and foreclosure guidelines with the mortgage part of the bankruptcy. The waiting period is two-year after the discharge date of Chapter 7 Bankruptcy if a mortgage was included in the bankruptcy. The recorded date of the foreclosure/short sale does not matter, BUT it needs to be finalized. If the mortgage included in the bankruptcy was a VA mortgage, it might affect the borrower’s entitlement benefits if they seek a VA Loan. The mortgage included in bankruptcy cannot be reaffirmed.
FHA Case Scenario On Mortgage Part Of Chapter 7 Bankruptcy
However, let’s take the same case scenario with FHA loans. HUD has a three-year waiting period after the recorded date of the foreclosure. In this case scenario, the three-year waiting period clock started on January 10, 2018. This borrower will not be qualified for an FHA loan until January 10, 2021, the three-year waiting period from January 10, 2018, the recorded foreclosure date. The mortgage part of the Chapter 7 Bankruptcy does not affect the waiting period requirements as it does for Conventional loans.
HUD requires a waiting period after the finalization of the foreclosure in cases where there was a mortgage included in bankruptcy. If the bankruptcy was discharged in February 2019 and there was a mortgage included in the bankruptcy with the foreclosure finalized in March 2023, the waiting period of three years starts on in March 2023.
Fannie Mae Bankruptcy and Foreclosure Guidelines: Waiting Period Requirements
The journey to owning a home can be difficult, especially for those who have financial setbacks such as bankruptcy or foreclosure. Fannie Mae, a leading entity in the mortgage industry, has established specific guidelines regarding the waiting periods required before individuals can qualify for a new mortgage after such events. Understanding these guidelines is critical for anyone looking to re-enter the housing market after overcoming financial difficulties.
Bankruptcy Waiting Period Requirements
Fannie Mae categorizes bankruptcies into two primary types: Chapter 7 and Chapter 13. Each type has distinct waiting period requirements before an individual can be eligible for a new mortgage.
Chapter 7 Bankruptcy
Also referred to as liquidation bankruptcy, it entails the discharge of most debts. For borrowers who have undergone Chapter 7 bankruptcy, Fannie Mae requires a waiting period of:
- Four years from the discharge or dismissal date of the bankruptcy.
- However, the borrower can demonstrate that the bankruptcy was due to extenuating circumstances. In that case, this waiting period may be reduced to two years.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, often called reorganization bankruptcy, involves a debt repayment plan. The waiting periods for Chapter 13 bankruptcy are as follows:
- Two years from the discharge date of the bankruptcy.
- Four years from the dismissal date of the bankruptcy.
- Similar to Chapter 7, if extenuating circumstances can be demonstrated, the waiting period may be shortened to two years from the dismissal date.
Foreclosure Waiting Period Requirements
Foreclosure is another significant financial event that impacts eligibility for future mortgages. Fannie Mae has set the following waiting periods for borrowers who have experienced foreclosure:
- Seven years from the completion time of the foreclosure.
- In extenuating circumstances, the waiting period may be reduced to three years. However, some additional criteria and limitations apply during this reduced waiting period.
Deed-in-Lieu of Foreclosure and Pre-Foreclosure Sale
In some instances, borrowers may avoid a full foreclosure through alternatives such as a deed-in-lieu of foreclosure or a pre-foreclosure sale (also known as a short sale). The waiting period requirements for these situations are:
- Four years from the completion date of the deed-in-lieu of foreclosure or pre-foreclosure sale.
- If the borrower can show extenuating circumstances, the waiting period may be reduced to two years.
Extenuating Circumstances
Fannie Mae defines extenuating circumstances as nonrecurring events beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. Examples include job loss, illness, or the death of a primary wage earner. Borrowers must provide documentation to support their claim of extenuating circumstances.
Impact of Multiple Bankruptcy Filings
For borrowers with multiple bankruptcy filings within the past seven years, the waiting period is generally extended to five years from the most recent discharge or dismissal date. However, if there are extenuating circumstances, this period may be shortened.
Re-entering the Housing Market
Understanding Fannie Mae’s waiting period guidelines is essential for borrowers who have faced bankruptcy or foreclosure. These guidelines provide a clear roadmap for when individuals can become eligible for a new mortgage, allowing them to plan their financial recovery and re-entry into the housing market.
For those seeking to re-establish their financial footing and pursue homeownership once again, adhering to these guidelines and working with financial professionals can help pave the way to a more stable and prosperous future.
Frequently Asked Questions (FAQs)
1. What are Fannie Mae’s guidelines for borrowers who have filed for bankruptcy?
Fannie Mae requires a period after bankruptcy before a borrower is eligible for a new mortgage. The waiting periods are:
Chapter 7 Bankruptcy: 4 years from the date of discharge or dismissal.
Chapter 13 Bankruptcy: 2 years from the time of release or four years from the release date.
2. Can the waiting period after bankruptcy be reduced?
Yes, Fannie Mae may reduce the waiting period to two years, which can show that the bankruptcy resulted from extenuating circumstances, such as a job loss, significant illness, or the death of a primary wage earner.
3. What are the guidelines for borrowers who have gone through foreclosure?
Fannie Mae requires a waiting period after a foreclosure before a borrower is eligible for a new mortgage. The standard waiting period is seven years from the completion date of the foreclosure.
4. Are there exceptions to the seven-year waiting period for foreclosure?
Yes, the waiting time can be reduced to three years if the foreclosure was due to extenuating circumstances. The borrower can provide documentation to support this claim.
5. According to Fannie Mae, extenuating?
Circumstances are nonrecurring events beyond the borrower’s control, such as a job loss, serious illness, or the death of a primary wage earner, that lead to a sudden, substantial and long-lasting decrease in income or a severe increase in financial obligations.
6. What is a deed-in-lieu of foreclosure, and how does it affect eligibility?
A deed-in-lieu of foreclosure is an agreement where the borrower willingly transfers the property’s title to the lender to avoid foreclosure. The waiting period after a deed-in-lieu of foreclosure is four years. Still, it can be reduced to two years with extenuating circumstances.
7. What is a short sale, and how does it impact eligibility?
A short sale happens when the lender permits the borrower to sell the property for less than the amount owed on the mortgage. The waiting period after a short sale is four years, which can be reduced to two years if extenuating circumstances can be documented.
8. Can I qualify for a new Fannie Mae mortgage if I had a previous foreclosure on an investment property?
Yes, the guidelines for a previous foreclosure apply to both primary residences and investment properties. The same considerations for waiting periods and extenuating circumstances are applicable.
9. How do multiple bankruptcies or foreclosures affect eligibility?
Suppose a borrower has multiple bankruptcies or foreclosures within the past seven years. In that case, the waiting period is generally extended to five years, even if extenuating circumstances exist.
10. What documentation is needed to prove extenuating circumstances?
Borrowers must provide a written explanation of the extenuating circumstances and supporting documentation, such as medical records, death certificates, or proof of job loss, to demonstrate that the event was beyond their control and significantly impacted their financial situation.
11. Are there additional requirements after the waiting period is over?
Yes, borrowers must re-establish good credit, demonstrate the ability to manage financial obligations responsibly and meet all other standard Fannie Mae underwriting guidelines, including income verification, debt-to-income ratios, and down payment requirements.
12. Can I apply for a Fannie Mae mortgage while still in a Chapter 13 bankruptcy repayment plan?
Yes, borrowers can apply for a Fannie Mae mortgage while in a Chapter 13 repayment plan, provided they have made at least 12 months of on-time payments and have received authorization from the bankruptcy court to enter into the mortgage transaction.
Homebuyers who have questions about Fannie Mae bankruptcy and foreclosure guidelines and need to qualify with a national lender with no overlays, contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Our licensed support personnel is available seven days a week, evenings, weekends, and holidays to take your calls and answer any questions.
