The answer depends on the type of financing the client is looking for, so we break it down by loan type:
SEE UPDATE NOTE AT END DATED 6/24.
FHA Financing - Minimum of TWO YEARS from the date of discharge. They may qualify for FHA financing inside that two year window, but NOT BEFORE 12 MONTHS, if they experienced a hardship such as loss of spouse or severe medical condition which was beyond the control of the borrower.
It is important to note here that Divorce is not considered beyond the control of the borrower. The qualifying hardship will need to be supported by documentation such as doctor letter(s), CPA letter or employer letter.
CONVENTIONAL Financing - Minimum of FOUR YEARS from date of discharge. Unlike FHA, the client can not qualify for a hardship waiver until after the 24th month following the discharge.
In these cases the hardship must be deemed as non-recurring, beyond the control of the borrower and resulted in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. Again, these situations need to be well supported with documented proof.
VA Financing - Minimum of TWO YEARS from date of discharge. The Veteran or Veteran’s spouse with a bankruptcy within the two years may qualify for a waiver.
Proving credit worthiness after a bankruptcy is toughest with VA Loans. This credit worthiness must be demonstrated both outside the two year requirement as well as within the two years if a waiver is needed. Credit worthiness must be well documented with NO late payments and reestablished credit. This usually requires credit score assistance as well.
In all cases, the client must have NO Late Payments since the discharge date of the Bankruptcy. It is imperative that a thorough check of credit is done well before a letter of pre-approval is supplied or submission to an underwriter.
With the exception of FHA, all other loan types require the reestablishment of credit after the discharge. FHA does allow borrowers who do not wish to reestablish credit to use NON-TRADITIONAL Trade Lines. These are accounts such as auto insurance, cellular phone companies and rental payments. They need to be well documented for no less than 12 months with NO LATE Payments; and updated on the borrowers credit report.
IMPORTANT NOTE TO REALTORS - When working with a client that has a Chapter 7 BK, and you are going to contract prior to the discharge date, make sure you leave ample time for mortgage application. The client can not make application for financing until at least ONE business day AFTER the date of discharge.
ADDED 6/24 - IMPORTANT NOTE REGARDING DISCHARGE OF MORTGAGES - A recent determination has been made that if someone had a mortgage included in a Chapter 7 Bankruptcy discharge, that it will be regarded as a Foreclosure. The result in this ruling extends the period of time within which they will qualify as the same as listed under Foreclusre rules. CLICK LINK TO SEE POST ON FORECLOSURES
There will be some instantces when this is not the case based on the results of automated guideline results. Contact us for more details.
We are always happy to answer questions even if you are going through another lender. Email us at questions@mortgage-safari.com or call us at 1-800-323-0954.
SEE UPDATE NOTE AT END DATED 6/24.
FHA Financing - Minimum of TWO YEARS from the date of discharge. They may qualify for FHA financing inside that two year window, but NOT BEFORE 12 MONTHS, if they experienced a hardship such as loss of spouse or severe medical condition which was beyond the control of the borrower.
It is important to note here that Divorce is not considered beyond the control of the borrower. The qualifying hardship will need to be supported by documentation such as doctor letter(s), CPA letter or employer letter.
CONVENTIONAL Financing - Minimum of FOUR YEARS from date of discharge. Unlike FHA, the client can not qualify for a hardship waiver until after the 24th month following the discharge.
In these cases the hardship must be deemed as non-recurring, beyond the control of the borrower and resulted in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. Again, these situations need to be well supported with documented proof.
VA Financing - Minimum of TWO YEARS from date of discharge. The Veteran or Veteran’s spouse with a bankruptcy within the two years may qualify for a waiver.
Proving credit worthiness after a bankruptcy is toughest with VA Loans. This credit worthiness must be demonstrated both outside the two year requirement as well as within the two years if a waiver is needed. Credit worthiness must be well documented with NO late payments and reestablished credit. This usually requires credit score assistance as well.
In all cases, the client must have NO Late Payments since the discharge date of the Bankruptcy. It is imperative that a thorough check of credit is done well before a letter of pre-approval is supplied or submission to an underwriter.
With the exception of FHA, all other loan types require the reestablishment of credit after the discharge. FHA does allow borrowers who do not wish to reestablish credit to use NON-TRADITIONAL Trade Lines. These are accounts such as auto insurance, cellular phone companies and rental payments. They need to be well documented for no less than 12 months with NO LATE Payments; and updated on the borrowers credit report.
IMPORTANT NOTE TO REALTORS - When working with a client that has a Chapter 7 BK, and you are going to contract prior to the discharge date, make sure you leave ample time for mortgage application. The client can not make application for financing until at least ONE business day AFTER the date of discharge.
ADDED 6/24 - IMPORTANT NOTE REGARDING DISCHARGE OF MORTGAGES - A recent determination has been made that if someone had a mortgage included in a Chapter 7 Bankruptcy discharge, that it will be regarded as a Foreclosure. The result in this ruling extends the period of time within which they will qualify as the same as listed under Foreclusre rules. CLICK LINK TO SEE POST ON FORECLOSURES
There will be some instantces when this is not the case based on the results of automated guideline results. Contact us for more details.
We are always happy to answer questions even if you are going through another lender. Email us at questions@mortgage-safari.com or call us at 1-800-323-0954.
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