Foreclosure, bankruptcy and short sale guidelines for buying a new home

I’ve get asked (all to often) what the guidelines are for buying a new home after a short sale, foreclosure or bankruptcy, so here is a quick reference guide:

Conventional Loans

Derogatory Event Waiting Period Requirements Waiting Period with Extenuating Circumstances
Bankruptcy – Chapter 7 or 11 4 years 2 years
Bankruptcy — Chapter 13 • 2 years from discharge date

• 4 years from dismissal dat

• 2 years from discharge date

• 2 years from dismissal date

Multiple Bankruptcy Filings 5 years if more than one filing within the past 7 years 3 years from the most recent discharge or dismissal date
Foreclosure 7 years 3 years Additional requirements after 3 years up to 7 years:

• 90% maximum LTV ratios

• Purchase, principal residence

• Limited cash-out refinance, all occupancy types

Deed-in-Lieu of Foreclosure and Preforeclosure Sale • 2 years — 80% maximum LTV ratios

• 4 years — 90% maximum LTV ratios

• 7 years — LTV ratios per the Eligibility Matrix

2 years — 90% maximum LTV ratios

FHA Insured Loans

Chapter 7 Bankruptcy:

  • Two (2) years since discharge and good credit has been reestablished.
  • Bankruptcies less than two (2) years (but not less than 1 year) may be allowed provided the reason for the bankruptcy was due to extenuating circumstances.
  • A borrower whose bankruptcy has been discharged less than one (1) year is not eligible except for non-credit qualifying Streamline Refinances when the loan has been reaffirmed in the bankruptcy.

Chapter 13 Bankruptcy:

Borrower is eligible for an FHA loan one (1) year from when the payout period began period provided all payments to the bankruptcy trustee have been made in a satisfactory manner and the borrower receives court approval to enter into the new mortgage transaction.

Consumer Credit Counseling:

Participation in a consumer credit counseling payment program does not disqualify a borrower from obtaining an FHA-insured mortgage provided that one (1) year of the pay-out period has elapsed under the plan and the borrower’s payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive written permission from the counseling agency to enter into the mortgage transaction.

Foreclosure:

Borrowers are not eligible for a new FHA mortgage if they pursued a short sale agreement on his or her principal residence simply to

  • take advantage of declining market conditions, and
  • purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.

Borrowers are considered eligible for a new FHA-insured mortgage if

  • they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and
  • the proceeds from the short sale serve as payment in full.

Borrowers in default on their mortgage at the time of the short sale (or pre-foreclosure sale) are generally not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.

VA Guaranteed Loans

Chapter 7 Bankruptcy:

If the borrower or the borrower’s spouse has had a Chapter 7 bankruptcy, they are not eligible for a VA loan for two (2) years from the date of discharge, not the date of filing.

Chapter 13 Bankruptcy:

Borrower is eligible for an VA loan one (1) year from when the payout period began period provided all payments to the bankruptcy trustee have been made in a satisfactory manner and the borrower receives court approval to enter into the new mortgage transaction.

Foreclosure:

A borrower may not be eligible for a VA guaranteed loan for two (2) years after foreclosure or deed-in-lieu of foreclosure. If the foreclosure was on a VA guaranteed mortgage the borrower may not be eligible for full entitlement for a new loan.

Collections and Judgments:

If a collection is minor in nature it usually does not need to be paid off, however judgments must be paid in full prior to closing. A borrower is not eligible for a VA loan if they are delinquent on any federal debt such as tax liens, student loans, etc. If payment arrangements are made that would bring the borrower up to date they may be considered for VA loan approval.

Consumer Credit Counseling:

Participation in a consumer credit counseling payment program does not disqualify a borrower from obtaining a VA guaranteed mortgage provided that one (1) year of the pay-out period has elapsed under the plan and the borrower’s payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive written permission from the counseling agency to enter into the mortgage transaction.

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