HAVE YOU EXPERIENCED A DEROGATORY CREDIT EVENT, BUT ARE READY TO BUY A HOME AGAIN?
HERE ARE THE GUIDELINES YOU NEED TO KNOW.
If you are ready to buy a home again, but are concerned about your past credit issues, there are some things that you need to know about. If you’ve experienced what’s considered a “derogatory credit event,” then you will need to know what government regulations are in place. There may be action steps you can take to ready yourself for a new purchase.
What are the most common derogatory credit events?
- Bankruptcy (Chapter 7, 11 or 13)
- Deed in Lieu of Foreclosure
- Preforeclosure Sale (Short Sale)
- Charge-Off of Mortgage Account
If you have experienced any of these events in your recent past, then you will have limitations which we will outline in this article. Even if you’ve had them in your distant past, there could still be some lingering issues that you’ll want to resolve.
The first step you should always take is reviewing your credit report at least six months before you are thinking about buying a home. Be sure and read my full article entitled Buying a Home in 2018? Start Following These Five Steps Now.
Transparent Mortgage provides you with the information and resources you need to make sound mortgage decisions. Below are the facts and guidelines relating to specific derogatory credit events.
2018 FHA GUIDELINES
The Department of Housing and Urban Development (HUD) regularly updates their regulations regarding FHA insured loans. It is a good idea to stay up-to-date with the current requirements so that you are always prepared when it comes time to apply for a new loan.
- Chapter 13 Bankruptcy: The FHA will consider approving a borrower who is still paying on a Chapter 13 Bankruptcy, as long as the payments have been made on time and can be verified for at least ONE (1) full year. You will need to have re-established good credit, show job stability and qualify in all other ways financially to have a chance.
- Chapter 7 Bankruptcy: You may apply for an FHA loan after your bankruptcy has been discharged for TWO (2) years.
- Foreclosure: FHA insured mortgages are generally not approved to any borrower who has experienced a foreclosure in the past THREE (3) years. There may be some extenuating circumstances if you have really turned your credit profile around in that time.
- Short Sale/Deed in Lieu of Foreclosure: The FHA treats short sales the same as foreclosures, so you typically must wait THREE (3) years after the short sale sale of your home.
- Credit Score: In order to qualify, you will have to restore your credit rating to 640 or higher.
2018 VA GUIDELINES
The current VA loan limit for most qualified veteran home buyers with full entitlement (without putting any money down) is $424,100, though that amount will depend on where you live and your financial situation. The Department of Veterans Affairs (VA) will have similar, but separate qualification guidelines as the FHA for borrowers with derogatory credit events in their pasts. If you have. Here are the mandatory waiting periods you need to know:
- Chapter 13 Bankruptcy: If you have made your payments on time and that can be verified for at least ONE (1) full year, you may be eligible for a VA loan. If you have made all your payments and re-established satisfactory credit, you should be in good position to apply for a new VA loan
- Chapter 7 Bankruptcy: You may apply for a VA guaranteed loan TWO (2) years after filing Chapter 7 Bankruptcy.
- Foreclosure: You may apply for a VA loan TWO (2) years after a foreclosure.
- Short Sale/Deed in Lieu of Foreclosure: You may apply for a VA loan TWO (2) years after a short sale. However, some restrictions may apply if your previous defaulted loan was a VA guaranteed loan.
- Credit Score: You will need to re-establish your credit to a minimum 620 score to qualify for a new VA loan.
2018 CONVENTIONAL LOAN (FANNIE MAE)
Fannie Mae loan limits will also vary by region. In order to be eligible for a mortgage loan in San Diego County, the Federal National Mortgage Association (Fannie Mae) requires that borrowers demonstrate re-established credit after a derogatory credit event. Minimum waiting periods are part of these regulations, as outlined below:
- Chapter 7 or 11 Bankruptcy: Borrowers must wait FOUR (4) years before they can apply for a new mortgage loan.
- Chapter 13 Bankruptcy: You must wait TWO (2) years from your discharge date or FOUR (4) years from your dismissal date. There may be special circumstances regarding the dismissal date waiting period if you’ve re-established your credit.
- Multiple Bankruptcy Filings: If you’ve had more than one bankruptcy filing in the past 7 years, Fannie Mae requires a waiting period of FIVE (5) years from your most recent discharge or dismissal date. Extenuating circumstances may be applicable that could reduce waiting period to THREE (3) years.
- Foreclosure: The waiting period for a conventional Fannie Mae loan is SEVEN (7) years after a foreclosure. This time could be reduced to as low as THREE (3) years with special extenuating circumstances:
- 90% maximum LTV ratios
- Purchase, principal residence
- Limited cash-out refinance (all occupancy types)
- Short Sale/Deed in Lieu of Foreclosure: If you had a short sale, you will need to wait FOUR (4) years before applying for another conventional mortgage loan.
2018 GENERAL JUMBO MORTGAGE GUIDELINES:
Ultimately, jumbo mortgage loans will follow the same guidelines and mandatory waiting periods as conventional Fannie Mae mortgage loans. However, because these are loans for much larger amounts, your application will be even more scrutinized and your credit situation will need to be great—especially if you have any derogatory credit events in your past.
- Bankruptcy: You must wait FOUR (4) years after any chapter of bankruptcy before you can apply for a jumbo mortgage loan. That waiting period goes up to FIVE (5) if multiple bankruptcy filings appear on your credit profile.
- Foreclosure: You may apply for a jumbo mortgage loan SEVEN (7) years after the sale date of your foreclosure. Other qualifying requirements may be applicable.
- Short Sale/Deed in Lieu of Foreclosure: The waiting period is FOUR (4) years before you can apply for a jumbo mortgage loan after a short sale or deed in lieu of foreclosure. You must also have a maximum 80% loan to value ratio in order to qualify.
For all your mortgage questions, more info about derogatory credit events and how to re-establish your credit rating, or to get started with your loan application, call Transparent Mortgage today at (619) 929-0199.