Path to Recovery: How Long does your borrower need to wait in order to secure financing after a BK, Short Sale or Foreclosure?
Conventional Agency & Agency Retained
Short Sale & Deed-In-Lieu of Foreclosure
- 4 years from completion date
- If extenuating circumstances exist: see below
- DU: 2 years from completion date
- LP: 2 years from completion date on owner occupied purchase or non-cash out refinance only, max 90% LTV or max LTV per program
Refinance of previously modified/restructured loans (no principal forgiveness)
- Allowed with evidence of a minimum of 24 consecutive months of timely mortgage payments after the terms of the loan were restructured
Bankruptcy: Chapter 7 or 11
- 4 years from discharge or dismissal date.
- If extenuating circumstances exist – 2 years from discharge or dismissal date
Bankruptcy: Chapter 13
- 4 years from dismissal date (borrower did not complete the Chapter 13 plan) or 2 years from discharge date.
- If extenuating circumstances exist – 2 years from discharge or dismissal date.
Multiple Bankruptcy Filings within the last 7 years
- 5 years from the most recent discharge date or dismissal date.
- If extenuating circumstances exist – 3 years from discharge or dismissal date.
Foreclosure
- 7 years from completion date of foreclosure action as reported on the credit report or other foreclosure documents*
- If mortgage debt has been discharged through bankruptcy, even if a foreclosure action is subsequently completed to reclaim the property in satisfaction of the debt, the borrower is held to the bankruptcy waiting periods and not the foreclosure waiting period.
- If extenuating circumstances exist: 3 years from the completion date of foreclosure action as reported on the credit report or other foreclosure documents*
- Purchase-90% or program limit, owner occupied only
- Refinance – Limited cash-out only, all occupancy types
- *Other restrictions may apply. See underwriting guidelines and mortgage insurance company guidelines (if applicable) for complete details
FHA
Short Sale
- 3 years from date of sale. Borrowers who sold their property under the FHA pre-foreclosure sale (or short sale) program are not eligible for three years from the date that FHA paid the claim associated with the pre-foreclosure sale.
- A borrower is considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all mortgage payments on the prior mortgage were made within the month due for the 12-month period preceding the short sale, and installment debt payments for the same time period were also made within the month due.
- A borrower in default on his/her mortgage at the time of the short sale (or pre-foreclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.
Deed-In-Lieu of Foreclosure, Foreclosure
- 3 years from completion date or the date FHA paid a claim associated with the mortgage, if any.
- If the result of documented extenuating circumstances that were beyond the control of the borrower and the borrower has re-established good credit, an exception to the three-year requirement may be considered.
Previously modified loan (any principal forgiveness or conversion of any portion to unsecured subordinate financing)
- An FHA loan that has been modified is eligible for the Streamline Refinance program as long as it meets the requirements for streamline refinance transactions.
- For all streamline refinance transactions, the new loan amount may not exceed the lesser of the:
1. Original loan amount, or
2. Outstanding principal balance (including up to 2 months interest and MIP) plus financed UFMIP.
The outstanding balance of a modified loan may reflect amounts that were previously added to the loan balance to facilitate loss mitigation. This is acceptable as long as the new loan amount is calculated as required for streamline refinance transactions (may not exceed the lesser of the original loan amount or outstanding principal) and all other streamline refinance criterion is met.
Bankruptcy: Chapter 7 or 11
- 2 years from discharge or dismissal date with re-established credit
- If extenuating circumstances exist – 1 year from discharge may be acceptable if the borrower documents extenuating circumstances beyond his or her control and now exhibits a documented ability to manage financial affairs in a responsible manner
Bankruptcy: Chapter 13
- A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA mortgage provided the lender documents that one year of the payout period under the bankruptcy has elapsed and the borrower’s payment performance has been satisfactory (i.e., all required payments made on time). In addition, the borrower must receive permission from the court to enter into the mortgage transaction.
VA
Short Sale, Deed-In-Lieu of Foreclosure or Foreclosure
- 2 years from completion date
- If extenuating circumstances exist – 12 months from completion date with re-established credit. Note: If the occurrence was on a VA loan, the veteran may not have full entitlement available for the new loan
Bankruptcy: Chapter 7 or 11
- 2 years from discharge or dismissal date
- Note: If bankruptcy was result of a business failure, provide evidence that;
- Applicant obtained permanent position after business failure
- No derogatory credit prior to self employment
- No derogatory credit subsequent to bankruptcy
- If extenuating circumstances exist – 12 months from discharge or dismissal date with re-established credit
Bankruptcy: Chapter 13
- A minimum of 12 months of payments have been made, all payments have been paid satisfactorily and Trustee
or Bankruptcy Judge has approved
