Bankruptcy, Foreclosure & Short-Sale Guidelines

lend-borrowBankruptcy, Foreclosure & Short-Sale Guidelines

As a Senior Loan Officer, I think the biggest challenge in today’s economic and mortgage lending environment has to do with the amount of people that have had a bankruptcy, foreclosure, or short-sale; and sometimes all of the above. It is important to understand what the current lending guidelines are when trying to get pre-approved to purchase a home. While they are always subject to change, here are the current ones.

Bankruptcy:

Chapter 7: With chapter 7 bankruptcies there is a total forgiveness of all debt. When considering loan approval, the clock starts using the date on the discharge letter. The discharge date is when all has been satisfied to the terms of the bankruptcy.

  • 2 years after discharge date for FHA loan approval.
  • 3 years after discharge date if involves a foreclosure for FHA loan approval.
  • 4 years after discharge date for Conventional loan approval.

Chapter 13: With chapter 13 bankruptcies there is a payment installment of debt. Unlike a chapter 7, with this type the clock starts using the date that the bankruptcy was filed.

  • 1 day after discharge date for FHA loan approval.
  • 4 years after discharge date for Conventional loan approval.

Foreclosure: What triggers foreclosure guidelines might be different from what one would expect. For example, would you ever think that being 120 days late on a mortgage would automatically be viewed as a foreclosure when it comes to mortgage lending? Well, it does.

  • 3 years for FHA loan approval using the date reflected on the HUD-1 Settlement Statement.
  • 7 years for Conventional loan approval using the date reflected on the HUD-1 Settlement Statement.

Short-Sale: Short-sales have become an intriguing option for homeowners who are upside down in their home and simply can’t afford it any longer. A short-sale is when the lender agrees to sell the home for an agreed upon price, and sometimes will even forgive the homeowner of any deficiencies. Short-sales are not viewed as detrimental as a foreclosure when it comes to lending guidelines.

  • 3 years for FHA loan approval using the date reflected on the HUD-1 Settlement Statement.
  • 4 years for Conventional loan approval using the date reflected on the HUD-1 Settlement Statement.

It is also important to note that just because one meets these guidelines doesn’t mean that they would automatically be approved for a loan. For example, there has to be absolutely no derogatory credit since these events or it is an automatic denial. Furthermore, there are also investor overlay guidelines as well as private mortgage insurance (PMI) overlay guidelines that have to be considered as well. Therefore, it is very important that a loan officer does his or her due diligence before going through with what will be a scrutinized loan process just to find out that the client is denied.

Not sure who to call or where to start? Contact me today for a 100% free no-obligation loan inquiry analysis.

Matt Pell, Senior Loan Officer
Mortgage Warehouse, LLC
(239) 672-8502 – Direct Line
(239) 344-9223 – Fax
Matt@mortgagewarehouse.com
www.facebook.com/themortgagewarehouse
Company NMLS ID – 137154
Individual NMLS ID – 1018529
Better Business Bureau Rating = A+

Advertisements

Posted on May 5, 2014, in Finance and tagged , , , , , , , , , , , , , , , , . Bookmark the permalink. 1 Comment.

  1. Interesting Read

C'mon! You know you want to comment...

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: