Foreclosure, Bankruptcy, and Waiting Periods, oh my!

By
Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141
https://activerain.com/droplet/5fMQ

Can I get a Mortgage after Bankruptcy or Foreclosure?

 

     Foreclosure and bankruptcy are  never fun things to discuss.  When it comes to a home, financial problems can turn shelter and a place filled with family memories into a source of stress and anxiety.  Although we advise people do everything within their power to avoid foreclosure, there is light at the end of the tunnel after a major credit event like foreclosure or bankruptcy, and the good news is, the tunnel isn’t as long as many people believe.

 Home Financing

     To start, there are programs already out there (with more popping up every day) for someone with a recent bankruptcy or foreclosure.  Especially for those people with good credit and some equity (or down payment if it’s a purchase loan), there are loan products available just 1 day after a foreclosure is recorded or a bankruptcy is discharged.  Generally speaking, most loan products have the longest waiting periods for foreclosure, following by Chapter 7 bankruptcy, and then Chapter 13 bankruptcy (the rationale being that the repayment period of a Ch 13 counts as financial “time served” in waiting to qualify for a new loan).  The products available immediately after a major credit event are out there, however the terms aren’t pretty.

 

     That said, there is some misconception around qualifying for a conventional mortgage after a foreclosure if the foreclosed home had a mortgage that was included in bankruptcy.  A foreclosure doesn’t become “official” until the deed is transferred and recorded.  Depending on the state, this process can take years to be completed.  However, if a borrower includes a mortgage in a bankruptcy and loses the home to foreclosure, regardless of how long the foreclosure takes, waiting periods will be based on the bankruptcy discharge date.  

 

     Let’s look at an example.  Say a homeowner runs into health and financial issues to an extent that they must declare bankruptcy.  If they declare a Chapter 7 bankruptcy, and it is discharged in October 2018, it’s possible that if their mortgage was included in the bankruptcy and they decided to allow the home to go through the foreclosure process, the note-holding bank on the mortgage may not complete the foreclosure process until 2019, 2020, or even later.  However, the ‘waiting period’ for the home owner to get a new conventional loan in this example would be up in October 2022.  

 

    The one potential hold up or pitfall we’ve seen is that to take advantage of this provision in conventional guidelines, BOTH credit events must be completed.  So in the above example, if the foreclosure process still isn’t completed in 2022, the home owner would need to wait until the foreclosure is completed and recorded before they could move forward with a new loan.

 

     For more borrowers, the options after bankruptcy and foreclosure are going to be limited in the years following their derogatory credit event.  Shorter time frames exist for government loans (FHA, VA, etc), and as we mentioned above, there are options available immediately following derogatory credit events, but for those seeking conventional financing, the waiting periods are 4 years for Chapter 7 BK, 2 years for Chapter 13 BK, and 7 years for foreclosure.  UNLESS the home foreclosed upon had a mortgage included in the BK, in which case the waiting period would be that based on the Bankruptcy.  The good news is Fannie Mae will not penalize you for BOTHthe BK and foreclosure.  Once the BK is discharged, the clock starts ticking on the waiting period to get a new mortgage, regardless of when the foreclosure is finalized.

 

 

Curious to know what your options are after a major credit event?  We have many options and resources and are always willing to help you navigate the process.  Feel free to ask an expert your specific questions, or complete our quick quote questionnaire to see what options you may have!

 

this blog post was originally featured on www.jmloans.com

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Re-Blogged 3 times:

Re-Blogged By Re-Blogged At
  1. Fred Griffin, on leave of absence from ActiveRain 10/16/2018 06:42 PM
  2. June Piper-Brandon 10/16/2018 08:45 PM
  3. Joe Jackson 10/18/2018 09:52 AM
Topic:
Lending / Financial
Groups:
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Mortgage Financing, Market Data & Forecast
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Bananatude
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Tags:
credit repair
conventional loans
bankruptcy mortgage
mortgage guidelines
foreclosure mortgage

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Rainmaker
1,827,317
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

From what I can see now , those foreclosed upon from 2009-2015 seem to be back in the market now as Boomerang Buyers .

Oct 17, 2018 07:06 AM #6
Rainmaker
2,107,601
Sharon Tara
Sharon Tara Transformations - Portsmouth, NH
New Hampshire Home Stager

Great advice! Congrats on a well deserved feature!

Foreclosure is not something I have any experience with. I hope to keep it that way.

Oct 17, 2018 07:42 AM #7
Rainmaker
787,879
Kevin Mackessy
Blue Olive Properties, LLC - Highlands Ranch, CO
Dedicated. Qualified. Local.

We have plenty of clients who have worked with great credit repair companies who have weathered the storm of 2008 by now.  There are many in that same situation, and they should be helped out and guided towards understanding what options are available for them.  

Oct 17, 2018 01:05 PM #8
Rainmaker
2,446,386
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

John and loans....This match pays off

Oct 17, 2018 04:50 PM #9
Rainmaker
977,560
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Great post!  I'm going to forward to a client.  Great information on each type of BK!

Oct 17, 2018 09:32 PM #10
Rainer
208,325
Sajy Mathew
Coldwell Banker Residential Brokerage - Lancaster, PA
Making your real estate dreams become a reality!

Congrats on the feature!  Good informative posts and info I can share with clients.

Oct 18, 2018 06:16 AM #11
Rainmaker
2,975,499
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of Manchester NH's Leading Agents

I like how you break it down. I have had 2 such buyers in the last 3 months and 1 able to get a mortgage and the other lots of work to do first

Oct 18, 2018 06:44 AM #12
Rainmaker
430,656
Tom Bailey
Margaret Rudd & Associates Inc. - Oak Island, NC

Thanks for the post. Lots of good info to share with my clients! Do you think credit repair companies are wort the money? If so, how does one identify a good one?

Oct 18, 2018 05:38 PM #13
Ambassador
2,860,080
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

I had a closing once where we had to wait 15 days for him to apply for the loan to get past the waiting period.  And I was steaming mad, it was a foreclosure because he had been not deployed, but reassigned posts within a state and the miles disqualified him from the exemption and relief but were too far to commute.  I was thankful to help him get into his retirement home. 

Oct 18, 2018 10:52 PM #14
Rainmaker
2,751,873
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

The waiting periods can be so tough but well worth it in the end when it’s all said and done. :)

Oct 18, 2018 11:13 PM #15
Rainmaker
2,751,873
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

15 days is quite a while considering what I’ve seen. But I’m glad you got through it and it kind of worked out. Tammy Lankford,

Oct 18, 2018 11:15 PM #16
Rainmaker
2,751,873
Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Tom Bailey I would say play it by ear or read a reputable source like maybe a Suze Orman book.

Oct 18, 2018 11:16 PM #17
Rainmaker
2,782,965
Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale-Probate & Trust Specialist

It's a beautiful thing to see so many of my short sale clients buy a home again. Three so far this year and one last year.  They paid their dues and now they get buy again.  

Congratulations on the Feature! 

Oct 19, 2018 08:28 AM #18
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Lynn B. Friedman
Atlanta Homes ODAT Realty Call/Text 404-939-2727 Buckhead - Midtown - Westside -- and more ... - Atlanta, GA
Concierge Service for Our Atlanta Sellers & Buyers

John Meussner 
Important to share clear information and you do it so well! There are so many details to know --- that's why we are lucky to be able to rely on you, John!
All the best -Lynn

Oct 19, 2018 08:41 PM #19
Rainmaker
291,229
Shirley Coomer
Keller Williams Realty Sonoran Living - Phoenix, AZ
Realtor, Keller Williams Realty, Phoenix Az

It seems the rules continue to evolve, that's why when I am asked how long one has to wait after one of these events, I refer them to a lender.  There are often many unique circumstances to consider and a lender can ask the right questions.  Great lenders are the secret to a successful real estate career!

Oct 20, 2018 06:34 AM #20
Rainer
265,727
Stephen Turner
Gemcraft Homes (TriCorner Realty) - York, PA
The BIG Guy of NEW HOME SALES

I second what Shirley Coomer has said, Great Lenders, lead to Great Real Estate Success! It's so important to not dismiss anyone and instead get them in touch with a great lender who can really look at their unique situation and review all the factors.

Oct 20, 2018 09:46 AM #21
Rainmaker
672,505
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

After the sad years spent working with short sale sellers and picking through the listings offered to buyers who were buying foreclosed homes, it is delightful to be able to help a past homeowner who SUFFERED through all of that to buy a home.

Oct 20, 2018 07:50 PM #22
Rainmaker
254,082
Lesley Wilson-VanGoethem
Innovative Realty Solutions Group - Winter Springs, FL
Residential Real Estate Broker Associate

Great info and explained so everyone can understand! Thx

Oct 21, 2018 05:41 AM #23
Rainmaker
198,342
L. Scott Ferguson
Ask4Ferguson - Your House-SOLD Name in Real Estate - West Palm Beach, FL
Sunny Florida Real Estate Professional

Great post!  I'm still servicing clients from 'then'  I tell them inch by inch it's a cinch and we are always using resources to help them move forward!

 

Blessings!

 

Fergie

Oct 24, 2018 05:58 AM #24
Rainmaker
334,734
Elisa Uribe Realtor #01427070
Golden Gate Sotheby's International - Oakland, CA
Opening the Doors to California Homes -East Bay

These are really good to know info! Will gladly share this to clients, thanks!

Oct 24, 2018 09:39 AM #25
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