Buying a House After Foreclosure and Bankruptcy | Minimum Guidelines
There are loan programs with no waiting period after bankruptcy and foreclosure. Government loans allow you to obtain financing while in a Chapter 13 bankruptcy. Seasoning for each loan program vary when:
- Buying a house after foreclosure.
- Seasoning on short sale or deed-in-lieu of foreclosure.
- Buying a house after bankruptcy.
- Buying a house while in a Chapter 13 bankruptcy.
No Seasoning Loan Program on Bankruptcy and Foreclosure
The Non-QM loan program allows you to buy a home a day after:
- Foreclosure, short sale, deed-in-lieu of foreclosure, modification, and recent lates (must be settled).
- A day after a settled Chapter 7, 11, or 13 bankruptcy.
- And even during a Chapter 13 bankruptcy.
This can be a great option when you have enough saved for the down payment and reserves.
Non-QM Down Payment and Reserves
The two biggest factors that play a roll in the down payment and reserves for the Non-QM loan program depend on credit score and the seasoning on the derogatory event.
For example, a 660 FICO credit score or higher requires a minimum of 10% down with additional requirements.
The minimum down payment and maximum cash out limit depends on:
- The amount of reserves.
- Credit score.
- Seasoning on the bankruptcy.
- Foreclosure seasoning.
- Seasoning on short sale.
- Modification seasoning.
- Late payments.
- Other factors, if applicable.
It is important that you explore traditional mortgage options to find the most competitive terms.
No Seasoning Loan Program Overview
- Cash out options up to 80% loan-to-value and minimum down payment requirement is 10%.
- 12 and 24 month bank statement option is allowed on home loans after a foreclosure and home loans after bankruptcy.
- Credit scores down to 500 FICO, but requires a higher of a down payment.
- Debt-to-income ratios up to 55% with compensating factors.
- 5/1, 7/1, 10/1 ARMS and 30 year fixed rates for mortgages after foreclosure and home loans after bankruptcy.
- Occupancy types allow primary residences, second homes, and investment properties.
The minimum loan amount for this program is $100,000 and the maximum loan amount is $2,000,000.
This post will go over minimum standards on traditional loans whether you are looking into buying a house after foreclosure, buying a house after bankruptcy, or buying a house while in a Chapter 13.
Buying a House While in Chapter 13 Bankruptcy
VA and FHA loans also allow you to buy a house while in a Chapter 13 bankruptcy if:
- 12 month satisfactory payments have been made for the Chapter 13 bankruptcy plan.
- You have received written permission from the court to enter into the transaction.
When buying a house while in a Chapter 13 bankruptcy, the mortgage will require manual underwriting. Some lenders are not willing to manually underwrite loans, have higher standards on credit, and even have debt-to-income caps.
Cash out refinances to pay off the remaining balance is allowed. An FHA loan will also allow purchasing and refinancing as long as there has not been a foreclosure in the past three years.
Traditional Mortgage Waiting Periods
Home loans after a foreclosure, home loans after bankruptcy, and buying a house while in a Chapter 13 vary when it comes to mortgage waiting periods.
Waiting Period for Conventional Mortgages
- Chapter 7 – per Fannie Mae’s waiting period, a four year waiting period is required from the discharge or dismissal date.
- Chapter 13 – two years from the discharge date or four years from the dismissal date.
- Foreclosure – seven year waiting period is required.
- Deed-in lieu of foreclosure, short sale, and charge off of mortgage account require a four year waiting period from the completion date.
Mortgage Debt Discharged through Bankruptcy
For conventional loans, in the case that the mortgage debt was discharged through the bankruptcy, the bankruptcy waiting period can be applied as long as there is appropriate documentation to verify that the mortgage was discharged in the bankruptcy.
FHA Guidelines on Seasoning
FHA loans are more lenient on credit and capacity than conventional loans, but have FHA minimum property requirements.
- Chapter 7 bankruptcy require two years from the date of discharge.
- Chapter 13 bankruptcy requires a manual underwrite, 12 month payout period from the bankruptcy plan made on time, and court permission to enter into transaction.
- Foreclosure, deed-in lieu of foreclosure, short sale require three year waiting period.
USDA Seasoning Requirements
USDA has stricter guidelines when it comes to property eligibility and income limits than most loan programs, but does not require a down payment.
- Chapter 7 has a three year waiting period from the discharge date.
- Chapter 13 bankruptcy does not require a credit exception for plans that are completed 12 months or greater.
- Buying a house after foreclosure, deed-in lieu of foreclosure, short sale have a three year waiting period.
VA Guidelines on Bankruptcy and Foreclosure
- Chapter 7 bankruptcy requires 24 months after discharge.
- Chapter 13 bankruptcy requires court permission and satisfactory payment history for 12 months.
- Foreclosure, deed-in lieu of foreclosure, short sale have a 2 year waiting period.