It’s no secret there will be fallout from the generally poor economic environment we’ve all lived through over the past few years. As a result, you may be wondering what the current guidelines are with regard to purchasing a home after either a bankruptcy or a foreclosure.
For starters, it’s important to note that guidelines for conventional financing through Fannie Mae and Freddie Mac are different than guidelines for Federal Housing Administration (FHA) loans.
It can be difficult getting a mortgage with adverse credit terms. Before starting the process, it’s important to know the lay of the land.
The following information may help:
Bankruptcies
There are two types of bankruptcies that people can go through, regardless if they own a home. They are Chapter 7 and Chapter 13. In Chapter 7, debt is wiped clean from the record. In Chapter 13, some type of payment plan is put into place to repay the debt
Conventional lenders will look at finances for at least four years after the dismissal date of either type of bankruptcy, while the FHA will look at two. Both depend on you having a solid credit history since the bankruptcy.
Some FHA borrowers with a Chapter 13 bankruptcy may be able to get a mortgage if they can prove to the lender, via the court system, that payments have been made in a satisfactory manner for a minimum of 12 months.
Foreclosures
The FHA is generally looking for three years from the completion date of a foreclosure before a purchaser can buy again. With conventional financing it is five years.
A deed in lieu of foreclosure will make you eligible for an FHA mortgage in three years as well.
This is where – instead of going through the foreclosure process – the owner agrees to give back the property to the lender in exchange for keeping a foreclosure off of their credit report.