Waiting Period Changes for Mortgage After Bankruptcy

Rebuilding your credit after bankruptcy is a difficult but not impossible task. Although it can be tricky to apply and get approved for loans if you have a recent history of consumer bankruptcy, such a goal is not out of the realm of possibility. If you recently filed for bankruptcy or are considering Chapter 7 bankruptcy, you might have heard that you will need to abide by a specific waiting period before applying for a mortgage. According to a recent article from The Mortgage Reports, Fannie Mae has announced that it is lowering the mandatory waiting period to apply for a mortgage after a bankruptcy, a short sale, or a foreclosure.
What else do you need to know about seeking out a home loan after having your debts discharged through consumer bankruptcy?
Following Bankruptcy, Debtors Only Need to Wait Two Years
If you are attempting to get approved for a home loan after filing for bankruptcy, you will not have to wait as long as you might have feared. Until the recent shift, debtors had to wait four years after a bankruptcy discharge before reapplying for a mortgage. Now, that time has been cut in half. For a mortgage backed by Fannie Mae, debtors will only need to wait for two years after bankruptcy. The same applies to a short sale or pre-foreclosure. Previously, a short sale or pre-foreclosure also meant that you would need to wait four years before being approved for another home loan, but the loosening of the guidelines means that you may be eligible to purchase a home again sooner than you might have thought.
And Fannie Mae is not the only entity that is relaxing its guidelines when it comes to mortgage approval. To be sure, FHA mortgage loan guidelines have recently gone through a similar process. Under the FHA Back to Work program, borrowers will only need to wait a minimum of one year (or 12 months) before seeking approval for a home loan. Why are the guidelines for mortgages being loosened? In short, there is a larger attempt across the board to “help borrowers with a history of poor credit because of bankruptcy, short sale, and pre-foreclosure.”
Learning More About Applying for a Mortgage After a “Significant Derogatory Event”
The guidelines from both Fannie Mae and the FHA concern mortgage applications following a “significant derogatory event.” After a “significant derogatory event,” a would-be borrower must endure a waiting period before being eligible for a mortgage. As we mentioned above, the waiting time has lessened dramatically both for Fannie Mae and certain FHA mortgages.
In addition to understanding the waiting period (for these home loans, either one or two years, typically), you should also understand what gets classified as a “significant derogatory event.” The article lists the following:
  • Bankruptcy;
  • Short sale;
  • Pre-foreclosure;
  • Deed-in-lieu of foreclosure; and
  • Mortgage loan charge-off.
Yet, as the article explains, even if you qualify for one of these mortgages, it could be in your best financial interest to wait a little bit longer to improve your credit in order to get a better financing rate.
If you have questions about the impact of bankruptcy on your ability to be eligible for credit, you should discuss your options with an experienced Oak Park bankruptcy attorney as soon as possible. Contact the Emerson Law Firm to learn more about how we can help with your situation.
See Related Blog Posts:
Canceling Bar Loans Through Consumer Bankruptcy

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