Fannie Mae And Freddie Mac Bankruptcy Guidelines On Conventional Loans

by Gustan Cho

This Article Is On Fannie Mae And Freddie Mac Bankruptcy Guidelines On Conventional Loans

Fannie Mae And Freddie Mac Bankruptcy Guidelines On Conventional Loans allow borrowers to qualify for a conventional loan after bankruptcy. However, borrowers need to meet the mandatory waiting period requirements after bankruptcy. The waiting period requirements after bankruptcy depends on the type of bankruptcy. Just meeting the mandatory waiting period after bankruptcy does not automatically make borrowers eligible to qualify on conventional loans. Borrowers need to get an approve/eligible per automated underwriting system (AUS). In order to get an approve/eligible per AUS, borrowers need to have rebuilt and reestablished credit after bankruptcy. No late payments after bankruptcy discharged date. Borrowers need to meet all minimum Fannie Mae and/or Freddie Mac Agency Guidelines. A prior bankruptcy does not affect mortgage rates on conventional loans. There are other factors that affect mortgage rates. Conventional loans are not government-backed loans. Private lenders originate and fund conventional loans. However, lenders will require borrowers to meet the minimum agency guidelines of Fannie Mae and/or Freddie Mac. This is because Fannie Mae and Freddie Mac are the two mortgage giants that are the biggest buyers of mortgage in the secondary mortgage market.

Understanding The Secondary Mortgage Market

What is the Secondary Mortgage Market

Lenders use their warehouse line of credit to fund loans they fund.

Once they fund the loans, lenders need to sell the closed loans on the secondary market. They can sell the loans they fund to a larger mortgage banker, bank, credit union, or directly to Fannie Mae and/or Freddie Mac. Eventually, the loans get being bought by Fannie Mae and/or Freddie Mac. Fannie Mae and Freddie Mac will not purchase any mortgages that do not conform to their agency mortgage guidelines. This is why conventional loans are commonly referred to as conforming loans. This is the reason why lenders make sure all of conventional loans conform to Fannie Mae and/or Freddie Mac agency guidelines. The role of Fannie Mae and Freddie Mac is to provide liquidity in the mortgage markets. By purchasing closed loans by lenders on the secondary market is how Fannie/Freddie provide liquidity in the mortgage market. It enables lenders to sell the loans they funded and pay down their warehouse line of credit. With room on their warehouse line of credit, lenders can originate and fund more loans.

Fannie Mae And Freddie Mac Chapter 7 Bankruptcy Guidelines On Conventional Loans

Fannie Mae And Freddie Mac Bankruptcy Guidelines On Conventional Loans after Chapter 7 Bankruptcy are as follows:

  • There is a four-year waiting period requirement after the Chapter 7 Bankruptcy discharged date to qualify for conventional loans
  • Borrowers need to get an approve/eligible per automated underwriting system (AUS)
  • The key in getting an approve/eligible per automated underwriting system (AUS), the borrower needs to meet all Fannie Mae and/or Freddie Mac Guidelines
  • Borrowers need to have rebuilt and re-established credit
  • You cannot have any late payments after bankruptcy
  • One or two late payments after bankruptcy is not always a deal killer
  • However, any late payments after Chapter 7 Bankruptcy are really frowned upon by lenders

We will discuss qualifying for a conventional loan for borrowers who had a mortgage included in bankruptcy and how the waiting period guidelines work in the next paragraph.

Fannie Mae And Freddie Mac Bankruptcy Guidelines: Mortgage Included In Bankruptcy

What are the bankruptcy guidelines for Fannie Mae and Freddie Mac

Many people have a mortgage included in their bankruptcy. Fannie Mae and Freddie Mac have specific waiting period requirements for consumers who have a prior mortgage included in bankruptcy.

Here is how the guidelines work for those who have a mortgage included in bankruptcy:

  • For consumers who have included a mortgage in a bankruptcy filing, there is a four year waiting period after bankruptcy discharge date to qualify for a conventional loan if and only if the mortgage has not been reaffirmed
  • What this means is if a mortgage was included in bankruptcy and it has not been reaffirmed, borrowers can qualify for a conventional loan four years after the discharge date
  • The date of the foreclosure, deed in lieu of foreclosure, a short sale does not matter
  • Fannie Mae and Freddie Mac will only go by the discharge date
  • If the housing event was finalized recently, it still does not matter and is not significant with qualifying for a conventional loan
  • This rule only applies to conventional loans
  • It does not apply to FHA loans
  • With FHA loans, if a borrower had a mortgage included in bankruptcy and was not reaffirmed, the waiting period clock does not start until the foreclosure has been finalized
  • HUD, the parent of FHA, require a three year waiting period after the finalized foreclosure date
  • The discharged date of bankruptcy is insignificant on FHA loans

This is a great rule and many borrowers who could not qualify for FHA loans can qualify for a conventional loan if they had a mortgage included in bankruptcy.

Fannie Mae And Freddie Mac Chapter 13 Bankruptcy Guidelines

Fannie Mae and Freddie Mac do not allow borrowers in an active Chapter 13 Bankruptcy repayment plan to qualify on conventional loans like FHA and VA loans. There is a two year waiting period after the Chapter 13 Bankruptcy discharged date to qualify for a conventional loan There is a four year waiting period after the Chapter 13 Bankruptcy dismissal date to qualify for conventional loans Reestablished credit after Chapter 13 bankruptcy discharged and/or dismissal date is expected No late payments after Chapter 13 bankruptcy and/or dismissal Borrowers need to meet all other Fannie Mae and/or Freddie Mac Agency Mortgage Guidelines.

Other Home Mortgage Program For Borrowers With No Waiting Period Requirements

What are the other mortgage programs for borrowers without waiting periods

Whether it is a two-year and/or four-year waiting period after bankruptcy, many homebuyers are ready now. Home prices are skyrocketing due to the booming housing market. The FHFA just announced the new 2021 Conforming Loan Limit increase to $548,250. This is the fifth consecutive year in a row the Federal Housing Finance Agency has increased conforming loan limits due to rising home values. Capital Lending Network, Inc. offers non-QM mortgages one day out of bankruptcy and foreclosure. However, a 30% down payment is required. As the bankruptcy and/or foreclosure seasons, the down payment requirement becomes less. For mortgage information in qualifying for non-QM loans one day out of bankruptcy and/or foreclosure, please contact us at Capital Lending Network, Inc. at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Capital Lending Network, Inc. is available 7 days a week, evenings, weekends, and holidays.

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Regina Halter November 3, 2021 - 1:42 pm

I have less than perfect credit and I’m just trying to get a home loan

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Amos Miller November 5, 2021 - 12:30 am

I filed bankruptcy in 2019. I was discharged November 1, 2021. I am hoping to refinance with cash out and was scammed while trying to do this last month. I would like to speak with someone regarding any options available prior to hard inquiry. The other company assured me, then went ahead and ran the inquiry. I owe roughly $182,800 on my loan. I would like to get cash out in the amount of $15,000 to pay off current debt, and do a remodeling project on my roof. Currently, my home is worth approximately $258,000 to $298,000.

Thanks.

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