Mortgage, Real Estate, and Credit Blog

There have been several updates over the past few years to the guidelines that affect these derogatory events. I am going to explain what each agency requires as their minimum guideline for a loan to be insured, guaranteed, or purchased by the major housing agencies that provide loans. Bare in mind, these are the minimum requirements for each agency and that lenders can enforce stricter guidelines. If the guidelines were more lenient, the agencies would not insure, guarantee, or purchase the loan from the lenders. However, they can be more strict and this is what we in the industry call a lender overlay.

Conventional or Conforming Agency Loan (Fannie Mae or Freddy Mac)

The date of the loan application is what they use to determine if the proper time frame has elapsed. Foreclosures are from the date the deed goes out of your name and into the new owners name, usually a sheriff deed back to the bank unless the home sells at the auction to someone else. Extenuating circumstances are defined as non-reoccurring events beyond the borrowers control that result in a sudden decrease in pay or increase in financial obligations.

Foreclosure:

• 7 years from the date of foreclosure with no extenuating circumstances.
• 3 years from the date of foreclosure with extenuating circumstances, can only be owner occupied, requires a 10% down payment, and is for purchase or rate and term refinances only.

Short Sale or Deed in Lieu of Foreclosure:

• 7 years from when the house sold for a down payment less than 10% of the new home purchase price
• 4 years from when the house sold with a 10% down payment
• 2 years from when the house sold with a 20% down payment
• 2 years from when the house sold with a 10% down payment if there were extenuating circumstances

Bankruptcy Chapter 7:

• 4 years from the discharge date
• 2 years from the discharge date with extenuating circumstances

Bankruptcy Chapter 13:

• 2 years from the discharge date or 4 years from the dismissal date

FHA

The date of the loan approval is what they use to determine if the proper time frame has elapsed. Foreclosures are from the date the deed goes out of your name and into the new owners name, usually a sheriff deed back to the bank unless the home sells at the auction to someone else. Extenuating circumstances are defined as a serious illness or death of a wage earner.

Foreclosure or Deed in Lieu of Foreclosure:

• 3 years from the date of foreclosure
• 1 year from the date of foreclosure if there were extenuating circumstances. (Most lenders do not allow less than 3 years though)

Short Sale:

• 3 years from when the house sold
• No waiting period if there were no late payments on any debt for 12 months prior to the short sale. (Most mortgage servicer’s require you to pay late in order to do a short sale though)

Bankruptcy Chapter 7:

• 2 years from the discharge date and either no new credit or re-established credit (Delinquency after bankruptcy is highly discouraged. Most lenders require re-established credit and will not lend to no credit or no credit score unless a second borrower has credit)
• 1 year from the discharge date if the bankruptcy was due to extenuating circumstances. Borrower must have re-established credit. (Most lenders will not allow less than 2 years)

Bankruptcy Chapter 13:

• 1 year of Chapter 13 plan payments, all on time, is required. Borrower must not have any late payments, and the bankruptcy plan must be paid off.

VA

The date of the loan approval is what they use to determine if the proper time frame has elapsed. Foreclosures are from the date the deed goes out of your name and into the new owners name, usually a sheriff deed back to the bank unless the home sells at the auction to someone else. Extenuating circumstances are defined as unemployment or medical bills that are not insured.

Foreclosure or Deed in Lieu of Foreclosure:

• 2 years from the date of foreclosure
• 1 year from the date of foreclosure if there were extenuating circumstances, credit is re-established and paid as agreed.

Short Sale:

• 3 years from when the house sold
• No waiting period if there were no late payments on any debt for 12 months prior to the short sale. (Most mortgage servicer’s require you to pay late in order to do a short sale though)

Bankruptcy Chapter 7:

• 2 years from the discharge date and either no new credit or re-established credit (Delinquency after bankruptcy is highly discouraged. Most lenders require re-established credit and will not lend to no credit or no credit score unless a second borrower has credit)
• 1 year from the discharge date if the bankruptcy was due to extenuating circumstances. Borrower must have re-established credit. (Most lenders will not allow less than 2 years)

Bankruptcy Chapter 13:

• 1 year of Chapter 13 plan payments, all on time, is required. Borrower must not have any late payments, and the bankruptcy plan must be paid off.

USDA

The date of the loan approval is what they use to determine if the proper time frame has elapsed. Foreclosures are from the date the deed goes out of your name and into the new owners name, usually a sheriff deed back to the bank unless the home sells at the auction to someone else. Extenuating circumstances are defined as loss of job, delayed government benefits, increased financial obligations due to death, illness, or anything out of your control. These events must be temporary and the reason for the extenuating circumstance must no longer be present.

Foreclosure, Short Sale, or Deed in Lieu of Foreclosure:

• 3 years from the date of foreclosure, short sale, or deed in lieu of foreclosure
• No waiting period from the date of foreclosure, short sale, or deed in lieu of foreclosure if there were extenuating circumstances. (Most lenders do not allow less than 3 years though)

Bankruptcy Chapter 7:

• 2 years from the discharge date and either no new credit or re-established credit (Delinquency after bankruptcy is highly discouraged. Most lenders require re-established credit and will not lend to no credit or no credit score unless a second borrower has credit)
• 1 year from the discharge date if the bankruptcy was due to extenuating circumstances. Borrower must have re-established credit. (Most lenders will not allow less than 2 years)

Bankruptcy Chapter 13:

• 1 from the date the plan was completed and the bankruptcy discharged; whichever occurs sooner
• No waiting period with extenuating circumstances

Most lenders are more restrictive than what the agencies establish as the minimum requirement. If your lender is more strict, either the guideline has changed which is happening pretty frequently these days or they are simply more restrictive to prevent losses on their loans.