After a Negative Credit Event, Buy Sooner Than You Think
We all know that we are coming out of a tough economic environment. And tough economic environments cause tough credit situations for a lot of folks.
So it may be no surprise that I get asked frequently about when or even if a person can qualify for a home loan after a derogatory credit event. I hope that this synopsis will serve as a guide – and really only a guide. Exceptions to the rules I am laying out do exist, so if in doubt, just call or send me an email to let me know your situation.
- Forclosure(or Deed in Lieu of Foreclosure): 3 years from the date of the foreclosure, with re-established credit; and less time with extenuating circumstances
- Short Sale: 3 years from the date of the closed sale when the deed transferred to the new owner. Here, one major exception applies.
- Chapter 7 Bankruptcy: 2 years from the date of the discharge of the bankruptcy, a borrower is eligible for a new FHA loan, so long as the borrower has maintained good credit since, with no derogatory items, and has re-established good credit
- Chapter 13 Bankruptcy: A borrower can be eligible for an FHA loan 1 year after the payout period has begun, so long as everything has been paid on time, and with court approval (which your lender, me, will help you to request and obtain).
- Foreclosure: 2 years from the date the foreclosure was complete.
- Other Circumstances: All other derogatory credit situations mirror the time-frames of an FHA loan.
USDA Rural Housing
- Chapter 7 Bankruptcy:3 years from the discharge date.
- Other Circimstances: All other derogatory credit situations mirror the time-frames an an FHA loan.
(Conventional Loans are loans the conform to Fannie Mae and/or Freddie Mac Guidelines)
- Foreclosure: 7 year from the date the foreclosure was completed (or, 3 years from the foreclosure date with extenuating circumstances and with 10% down payment.)
- Short Sale: 7 years from the date the sale was closed and the title transferred to the new owner for less than 10% down payment.
- Or, 4 years from the date the sale was closed and transferred to the new owner with 10% or greater down payment.
- Or, 2 years form the date the sale was closed and transferred to the new owner with 20% down payment.
- Chapter 7 Bankruptcy: 4 years from the discharge date.
- Chapter 13 Bankruptcy: 2 years from the discharged date.
All of these rules allow for shorter time periods from the derogatory event, given ‘extenuating circumstances’, such as extended job loss, death of a primary wage earner, etc. The one event that does not count as an extenuating circumstance – and probably should given anyone who has experienced it – is divorce. Pretty much any extenuating circumstance will require some documentation about the circumstances.
As always, call me if you have a scenario or a question that I can help with. The good thing here is that many, many people think that a bankruptcy or a foreclosure will damage your credit for great lengths of time, if not forever. That, I am happy to say, could not be further from the truth. If you or someone you know has gone through a major derogatory credit event, then I would be happy to help you rebuild and get ready to buy a home when the time comes.
If I can help with any questions or with your next home loan, call me at 1-800-MY-LOANS (1-800-695-6267) or request a free rate quote.
Just remember: the key to all of this is re-building credit. But that is topic for another day and another post.