Mortgage Financing with Foreclosures, Short Sales, and Bankruptcies

Posted by on Friday, April 26th, 2013 at 1:15pm.

In the wake of the financial crisis and recent recession, millions of would-be homebuyers with foreclosures, short sales, or bankruptcies listed in their credit histories naturally wonder as to their prospects for new mortgage financing. Since lending requirements vary from product to product (such as conventional to FHA) and because investor guidelines are in constant flux, there is no easy answer as to which options a given borrower may have. Another complicating factor is "lender overlays." These are additional requirements that lenders routinely impose on the loans they underwrite in an effort to manage portfolio risk. Examples range from higher credit scores, limitations to loan sizes, increased assets, etc., and these will be adjusted periodically and vary from lender to lender.

With so many moving parts, it's hard to know what your options might be any given time. But beginning from a somewhat conservative base provides a general sense of viability. Here are some fairly standard requirements for popular loan programs:

LOAN TYPE

Negative Credit Event

Negative Credit Event

Negative Credit Event

Negative Credit Event

Foreclosure

Short Sale/Deed in Lieu of Foreclosure

Chapter 7 or 11 Bankruptcy

Chapter 13 Bankruptcy

Conventional

7 years if < 10% Equity

2 Years from Discharge

7 Years

 4 Years if 10% + Equity

4 Years from Discharge

4 Years from Dismissal

Fannie Mae Direct

7 years if < 10% Equity

2 Years from Discharge

7 Years

 4 Years if 10% + Equity

4 Years from Discharge

4 Years from Dismissal

2 Years if 20% + Equity

FHA

3 Years

3 Years

2 Years

1 Year in Payment Plan

7 Years for High Balance

0 Years if Current on All Debt for the

7 Years for HB Cash Out

7 Years for HB Cash Out

12 Months Preceding Short Sale

VA

3 Years

2 Years

1 Year in Payment Plan

7 Years for Jumbo

3 Years

7 Years for Jumbo

7 Years for Jumbo

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