Waiting Period After Foreclosure To Qualify For Mortgage

In this article, we will cover and discuss the waiting period after foreclosure to qualify for mortgage. Foreclosure can have a major financial impact, but it does not permanently bar you from homeownership. Mortgage lenders follow specific waiting period after foreclosure to qualify for mortgage. The term of this waiting period changes based on the type of loan you seek and whether you can demonstrate extenuating circumstances. Familiarizing yourself with these guidelines can help you strategically plan your return to homeownership.

Understanding Foreclosure and Its Impact

Foreclosure takes place when homeowners are unable to pay for their mortgage, urging the lender to retrieve and sell the property. This process can have a serious impact on your credit score, usually lowering it by 100 to 160 points. Also, foreclosure continue to be on your credit report for seven years, potentially making it more challenging to secure new credit or loans.

Waiting Period After Foreclosure To Qualify for Mortgage on Conventional Loan

Conventional loans, backed by Freddie Mac and Fannie Mae, have the most extended waiting period after foreclosure to qualify for mortgage. The standard waiting period is 7 years from the foreclosure completion date. For exception for extenuating circumstances, the waiting period can be lowered to 3 years if you can document an uncontrollable financial hardship, such as a job loss, medical emergency, or divorce. However, this requires a minimum 10% down payment. And lastly, for foreclosure included in bankruptcy, if the foreclosure was discharged through Chapter-7 bankruptcy, the waiting period is 4 years from the bankruptcy discharge date, even if the foreclosure occurred later.

Waiting Period After Foreclosure To Qualify for Mortgage on FHA Loan

FHA loans, insured by Federal Housing Administration, have more lenient requirements. The standard waiting period after foreclosure to qualify for mortgage is 3 years from the foreclosure completion date, In cases of documented hardship beyond the borrower’s control, the waiting period may be waived. For credit rebuilding requirement, borrowers must show re-established credit with on-time payments after foreclosure.

Waiting Period After Foreclosure To Qualify for Mortgage on VA Loan

VA loans are available to eligible military members and veterans. The standard waiting period after foreclosure to qualify for mortgage is 2 years from the foreclosure completion date. If the previous foreclosure involved a VA loan, some entitlement restoration may be required before qualifying for another VA loan. In some cases, veterans may be eligible sooner than 2 years if they can prove significant hardship.

Waiting Period After Foreclosure To Qualify for Mortgage on USDA Loan

USDA loans, designed for low-to-moderate-income borrowers in rural areas, have a waiting period after foreclosure to qualify for mortgage similar to FHA loans. Standard waiting period after foreclosure to qualify for mortgage is 3 years from the foreclosure date. If the borrower was able to document that the foreclosure was due to a temporary, uncontrollable financial hardship, an exception may be granted.

Waiting Period After Foreclosure To Qualify for Mortgage on Non-QM Loan

Non-QM (Non-Qualified Mortgage) loans offer alternative financing solutions for borrowers who don’t meet traditional mortgage guidelines. Some non-QM lenders allow borrowers to qualify immediately after foreclosure, but terms vary. If higher down payment is provided, expect to put down 20% to 30% or more. Because of the risk involved, interest rates are generally higher than conventional and government-backed loans.

Mortgage Part Of Chapter 7 Bankruptcy And Waiting Period After Foreclosure To Qualify For Mortgage

Many homeowners have included their mortgage loans as part of their Chapter 7 bankruptcy petition and their mortgage was part of their Chapter 7 bankruptcy. When a homeowner has a mortgage and/or mortgages as part of Chapter 7 bankruptcy, the note will get discharged and they no longer owe the mortgage.

Petitioners of Chapter 7 Bankruptcy will no longer owe their note as well as any deficiencies. However, they need to make sure that the deed of the home is transferred out of their name and into the mortgage lender’s name.

I still get countless calls from potential borrowers who have waited the necessary waiting period requirement but the deed of their home that was part in their Chapter bankruptcy has not been transferred out of their name and is still in the lender’s name. For these folks, the waiting period has not even started yet. They need to get their name out and into the lender’s name asap and have it recorded in the county recorders office as soon as possible.

Waiting Period After Foreclosure To Qualify For Mortgage: Deed Transferred

Homeowners who had a prior foreclosure or a deed in lieu of foreclosure, make sure that the deed has been transferred out of their name into your lender’s name.

• Make sure the deed has been fully recorded because the waiting period after foreclosure to qualify for mortgage will not start until this task has been fully executed
• Also, never assume that the deed is transferred out of their name if a mortgage was part of Chapter 7 bankruptcy
• Remember that the waiting period after foreclosure to qualify for mortgage does not begin until the deed is out of the homeowners’ name even if the foreclosure was part of the bankruptcy
• Many bankruptcy attorneys did not follow up with their bankruptcy clients on having the deed out of their names and transferred into the lender’s name

Contact the lender and plead with them to get it transferred asap and follow up with it.

What If Lender Does Not Transfer Deed Out Of Your Name?

There are cases where a person’s filed bankruptcy and their mortgage was part of their bankruptcy. But the lender will not cooperate in getting the deed transferred and recorded to their name. I have seen cases where it was many years after the fact and the deed is still not transferred and recorded. If a bankruptcy petitioner included mortgage part of bankruptcy, the mortgage note and deficiencies are totally wiped out. The petitioner technically owns the home free and clear. In a way, it is stupid for the mortgage lender not to transfer the deed into their name.

If the lender does not cooperate, mail them a certified letter stating the fact that they have 48 hours from the receipt of their certified letter with the intent on selling the home and keeping the proceeds if they do not transfer and record the deed into their name.

This will shake them up and I am confident that the lender will get their lazy butts in gear and have the deed transferred and recorded into their names asap. Technically, homeowners have the deed to their home but no mortgage so they can sell the property and transfer and record the deed to the home out of their name to the name of the new buyer. This tactic will not get finalized because the lender still has a lien on the property.

Late Payments After Foreclosure And Bankruptcy

Over 75% of our borrowers at Gustan Cho Associates are folks who either got a last-minute mortgage loan denial or are stressing over their mortgage process with their current lender.

The number one reason why borrowers get last-minute mortgage loan denials or stress during the mortgage process is that they were not properly qualified by their loan officers. There is no reason why borrowers should get a loan denial or stress over the mortgage loan process.

The pre-approval stage of the mortgage process is the most important phase. It is better to wait and get properly pre-approved than get a rushed pre-approval letter. Gustan Cho Associates has no lender overlays on government and conventional loans. Gustan Cho Associates just go off the automated findings of the automated underwriting system. 

Late Payments After Bankruptcy And Foreclosure

Most lenders will automatically disqualify borrowers who had late payments after bankruptcy and/or foreclosure/deed in lieu of foreclosure/short sale. They consider anyone who had late payments after a bankruptcy and/or significant housing event (foreclosure/deed in lieu/short sale) as a second offender However, late payments after bankruptcy and/or foreclosure is does NOT disqualify a borrower from qualifying for government or conventional loans.

Late Payments After Bankruptcy and/or Foreclosure is allowed per mortgage lending guidelines but it may be overlays imposed by the particular lender.

Lender Overlays are mortgage guidelines that are above and beyond those of FHA, VA, USDA, Fannie Mae, or Freddie Mac. Gustan Cho Associates are national lenders licensed in multiple states with no overlays on government and conventional loans. We just go off the automated findings of the Automated Underwriting System.

Main Reason Of Mortgage Process Blowup

This section is geared for loan officers. All Loan Officers should not just review the income and credit scores but thoroughly go through borrowers’ credit reports.

• I have seen countless times where loan officers just assume a borrower qualifies for mortgage and issue pre-approvals
• This is because the borrower gets an Approve/eligible per Automated Underwriting System
• BIG MISTAKE
• Loan Officers need to thoroughly review borrowers credit report and look for any credit disputes
• The Automated Underwriting System does not pick up credit disputes
• Credit Disputes on non-medical collections, charge off accounts, and late payments are not allowed and the file will get SUSPENDED during the mortgage process
• Reason Credit Disputes During Mortgage Process is not allowed is because the three credit reporting agencies AUTOMATICALLY negate the derogatory tradelines in credit disputes
• For example, if a borrower disputes a recent collection account on their credit bureaus, the disputed recent collection account will automatically be disregarded by the credit bureaus
• Since the derogatory item is disregarded by the credit bureaus, the consumer credit scores will go up
• The derogatory item will remain but the verbiage that consumer disputes will skyrocket the borrowers’ credit scores
• This is because credit bureaus automatically take out the negative factor from the consumer credit scoring model during the dispute process
• Retracting that credit dispute can plummet the borrower’s credit scores where they no longer qualify

Loan Officers should not issue pre-qualifications and/or pre-approvals when borrowers have pending credit disputes. If Loan Officers need to get a few extra points on borrowers’ credit scores can do so by disputing recent medical collections and/or zero balance non-medical collections. This practice does work but how long are the key questions. Credit Bureaus normally catch up when loan officers try creative ideas to boost client’s credit scores.

Exempt From Credit Disputes

There are special instances where credit disputes are allowed. Here are the exemptions:

• Medical Credit Disputes are okay and exempt from credit dispute guidelines on all loan programs
• Non-Medical credit disputes with zero balances are exempt from credit disputes
• If borrowers have credit disputes on non-medical collections and the total outstanding balance of all of their collections are under $1,000 balances, then it is exempt and they do not have to retract those disputes
• Any credit disputes that are 24 months or older are exempt from retraction

In the event, if loan officers know that the borrowers’ credit scores will plummet by retracting credit disputes, then do not have borrowers retract them and downgrade the file to a manual underwrite.

There Is No Waiting Period After Foreclosure to Qualify for Mortgage on Time Share Property

Under HUD Guidelines, there are mandatory waiting period requirements to qualify for FHA Loans after the following:

• Chapter 7 Bankruptcy
• Chapter 13 Bankruptcy
• Foreclosure
• Deed In Lieu Of Foreclosure
• Short Sale

However, there is no waiting period after foreclosure to qualify for mortgage on time share property.

Waiting Period After Bankruptcy To Qualify For FHA Loans

There is a mandatory waiting period after a Chapter 7 Bankruptcy discharged date. The waiting period of 2 years from the date of the Chapter 7 Bankruptcy discharge date in order for a mortgage loan borrower to qualify for an FHA loan on a residential one to four-unit property.

• Just because the borrower has passed the 2-year mandatory waiting period does not automatically qualify him or her for FHA Loans
• Lenders want to see re-established credit and no late payments after a bankruptcy discharge

Most lenders want to see automated approval via Fannie Mae’s Automated Underwriting System in order to proceed with the mortgage underwriting process.

Frequently Asked Questions on Waiting Period After Foreclosure to Qualify for Mortgage:

1. How long is the waiting period after foreclosure to qualify for mortgage on conventional loan?

Typically, 7 years from the foreclosure completion date, but it can be 3 years with extenuating circumstances and a 10% down payment.

2. What is the waiting period after foreclosure to qualify for mortgage on FHA loan?

3 years from the foreclosure date. However, some exceptions exist for borrowers with extenuating circumstances.

3. Can I still qualify for a VA loan after foreclosure?

Yes, the waiting period after foreclosure to qualify for mortgage on VA loan is 2 years. However, you must restore your VA entitlement if the previous loan was VA-backed.

4. What is the waiting period after foreclosure to qualify for mortgage on USDA loan?

3 years from the foreclosure date, though extenuating circumstances may allow for a shorter waiting period.

5. Is there a waiting period after foreclosure to qualify for mortgage on Non-QM loans?

Non-QM lenders do not follow agency guidelines, so they may offer loans as soon as 1 day after foreclosure with higher down payments and interest rates.

6. Can I buy a home sooner if I had a foreclosure due to extenuating circumstances?

Lenders may reduce the waiting period if you can prove an uncontrollable financial hardship, such as a medical emergency, job loss, or divorce.

7. How does foreclosure affect my credit score and future mortgage approval?

Foreclosure can decrease your credit score by 100-160 points and stay on your credit report for 7 years, making it harder to qualify for a loan with favorable terms.

8. Can I get a mortgage if the foreclosure was included in a bankruptcy?

Conventional loans allow a 4-year waiting period from a Chapter 7 discharge, even if the foreclosure happened later. FHA and VA loans may still follow standard foreclosure waiting periods.

9. What steps can I take to rebuild my credit after foreclosure?

Pay bills on time, reduce credit utilization, open new credit lines responsibly, and consider credit builder loans to improve your score.

10. Can I get a mortgage while still having a foreclosure on my record?

Some hard money lenders and non-QM loans allow financing with recent foreclosures but expect higher down payments (20-30%) and interest rates.

Qualifying With Mortgage Lender With No Overlays

As long as the borrower can get approve/eligible per Automated Underwriting System Findings and the borrower can meet all conditions of the AUS, Gustan Cho Associates can do the loan. If you have questions about the waiting period after foreclosure to qualify for mortgage or if you’re a borrowers who is interested in getting qualified with a direct lender with no lender overlays on FHA, VA, USDA, Fannie Mae, Freddie Mac home loans, please contact us at 800-900-8569 or text us for a faster response. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays via phone or email us at gcho@gustancho.com.