Bankruptcy and Foreclosure Seasoning

Bankruptcy Foreclosure Seasoning Requirements For Best Mortgage Lender in Dallas TX

Below are the seasoning requirements for various types of loans. Foreclosures, Short Sales, Deed-in-Lieu, Preforeclosure, and Charge-Off of Mortgages are all treated the same when it comes to seasoning requirements. All are measured from the date that the title was actually transferred out of the homeowner’s name and into the bank’s name.

Conventional

Bankruptcy

Chapter 7 Bankruptcy (or Ch. 11)

Fannie Mae requires the following waiting periods for a Chapter 7 or 11 bankruptcy:

  • A 4 year waiting period is required and is measured from the discharge or dismissal date of the bankruptcy action.
  • A 2 year waiting period is permitted if extenuating circumstances can be documented.

Chapter 13 Bankruptcy

A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period required for Chapter 13 bankruptcy actions is measured as follows:

  • 2 years from the discharge date, or
  • 4 years from the dismissal date
  • 2 year period from the dismissal date is permitted if extenuating circumstances can be documented. There are no exceptions permitted to the two-year waiting period after a Chapter 13 discharge.

The shorter waiting period based on the discharge date recognizes that borrowers have already met a portion of the waiting period within the time needed for the successful completion of a Chapter 13 plan and subsequent discharge. A borrower who was unable to complete the Chapter 13 plan and received a dismissal will be held to a 4 year waiting period.

Multiple Bankruptcy Filings

If a single borrower has multiple bankruptcy filings, the following waiting periods apply (note: two borrowers that each have an individual filing do not count as multiple filings):

  • A 5 year waiting period is required when there are multiple bankruptcy filings within the past seven years.
  • A 3 year waiting period is permitted if extenuating circumstances can be documented but the most recent bankruptcy filing must have been the result of extenuating circumstances.
Foreclosures

Foreclosures

A 7 year waiting period is required before conventional financing is available.

Exceptions can be made for a 3 year waiting period if extenuating circumstances can be documented AND the CLTV is (at or below) 90% and the loan is to purchase a primary residence. Rate and term refinances are allowed for all property types. Note: cash out refinances and purchase loans for investment properties and second homes require a seven-year waiting period.

Short Sales

Short Sales / Deed-In-Lieu

A 4 year waiting period is required from the completion of the short sale.

Exceptions can be made for a 2 year waiting period if extenuating circumstances can be documented.

Foreclosure And BK On The Same Mortgage

If a mortgage was discharged through a bankruptcy then the bankruptcy period may be applied (with the property documentation); otherwise, the greater waiter period between bankruptcy and Foreclosure Waiting Periods will be applied.

FHA Requirements

FHA Foreclosure

FHA Foreclosure

FHA requires a 3 year waiting period from the date that the foreclosure was finalized before allowing a borrower to purchase or refinance a new mortgage home loan.

FHA Short Sale Seasoning Requirements

FHA Short Sale Seasoning Requirements

The time it takes (i.e. the “seasoning requirements”) to get an FHA home loan after you have had a short sale depends on your circumstances during the short sale. A borrower is not eligible for a new FHA-insured mortgage if they pursued a short sale agreement on their principal residence simply to:

  • take advantage of declining market conditions, and/or
  • purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value.

Borrower current at the time of short sale

A borrower is considered eligible for a new FHA-insured mortgage if, from the date of loan application for the new mortgage, all

  • mortgage payments on the prior mortgage were made within the month due for the 12-month period preceding the short sale, and
  • installment debt payments for the same time period were also made within the month due.

Borrower in default at the time of short sale

A borrower in default on his/her mortgage at the time of the short sale (or preforeclosure sale) is not eligible for a new FHA-insured mortgage for three years from the date of the pre-foreclosure sale.

Note: A borrower who sold their property under FHA’s pre-foreclosure sale program is not eligible for a new FHA-insured mortgage from the date that FHA paid the claim associated with the pre-foreclosure sale.

Exception: A lender may make an exception to this rule for a borrower in default on their mortgage at the time of the short sale if the:

  • default was due to circumstances beyond the borrower’s control, such as death of primary wage earner or long-term uninsured illness, and
  • a review of the credit report indicates satisfactory credit prior to the circumstances beyond the borrower’s control that caused the default.
FHA Bankruptcy

Chapter 7

A 2 year waiting period is required for these events but exceptions can be made for a 1 year waiting period if extenuating circumstances can be documented. During this time the borrower will have needed to either re-establish good credit OR chosen not to establish any new credit. (Basically, someone can’t have credit issues after the bankruptcy).

Chapter 13

A 1 year waiting period is required for a Chapter 13 bankruptcy; however, if it’s less than two years the loan will be downgraded and a manual underwrite will be required (which means additional documentation will be required). If someone is still in the bankruptcy then 12 months of on-time acceptable payments will need to be documented along with written permission from the bankruptcy court / credit counseling agency allowing the new mortgage transaction.

VA Requirements

VA Bankruptcy

VA Bankruptcy – Chapter 7

At least two years from discharge date; bankruptcy may be disregarded. Reason must be documented and not likely to reoccur.

Between one and two years from discharge date; credit has been reestablished for that period of time and was caused by circumstances beyond the borrower’s control and evidence the borrowers have demonstrated their ability to handle their financial affairs
Less than one year – not eligible

VA Bankruptcy – Chapter 13

Satisfactory performance for at least one year of the pay out period and permission from the court to enter into the mortgage transaction

VA Foreclosure

Foreclosure

If foreclosure is due to hardship, then:
If seasoned > 36 months but < 84 months minimum, max LTV is 90%
If seasoned > 84 months, standard down payment policies apply
If foreclosure is due to financial mismanagement, must be seasoned at least 84 months

Foreclosure (Deed in Lieu)

If Deed in Lieu is due to hardship, then:
If seasoned > 36 months but < 84 months minimum, max LTV is 90%
If seasoned > 84 months, standard down payment policies apply
If Deed in Lieu is due to financial mismanagement, then:
If seasoned > 48 months but < 84 months minimum, max LTV is 90%
If seasoned > 84 months, standard down payment policies apply

Short Sale/Principal Forgiveness

Concurrent Short Sales are not eligible for delivery to Chase under any circumstances
Previous Short Sale due to hardship must be seasoned at least 36 months.
If seasoned 36 months but 84 months minimum down payment of 10% is required.

◦ If seasoned > 84 months standard down payment policies apply
• Previous Short Sale NOT due to hardship must be seasoned at least 48 months.
If seasoned > 48 months but < 84 months minimum down payment of 10% is
required.

◦ If seasoned > 84 months standard down payment policies apply
• Principal Reduction Modification due to hardship must be seasoned at least 36 months.
◦ Standard down payment policies apply
Principal Reduction Modification NOT due to hardship must be seasoned at least 48
months.

◦ Standard down payment policies apply