Bankruptcy or Foreclosure? What you need to know about Derogatory Event waiting periods By Therese A. Hartmann
A woman called me this morning needing help with her loan. It seemed like it was going to be a straightforward refinance since she was a W-2 employee, making a great salary with very little consumer debt. The refinance would save this woman over $600 a month so I was eager to get her loan going for her. However, in researching her property profile to get an idea on the value of her home, I noticed there had been a bankruptcy in 2015. So, did this close the door on a new loan? The happy news is no, she will easily qualify!When we look at the waiting period for a “derogatory event” such as bankruptcies or foreclosures, you do need to take a look at the overall picture. Was the mortgage a government loan such as a VA, FHA or USDA loan? Was it a conventional Fannie or Freddie loan and if so, were there extenuating circumstances? If you, or someone you know, has had one of the following events, they can use this quick guide to determine eligibility to refinance or, buy a home: · Foreclosure — Wait period is 7 years from date foreclosure was completed and transferred back to the bank if no extenuating circumstances.
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· Foreclosure — Wait period is 3 years from foreclosure date if there is a down payment (or equity) of 10 percent and if there were extenuating circumstances. · Bankruptcy Chapter 7 — When all debts have been discharged through bankruptcy, the wait period is only 4 years from discharge date or 2 years if there were extenuating circumstances · Bankruptcy Chapter 13 — In this case, debts are paid back on a monthly scheduled payment plan. The waiting period is 2 years from discharged date or 4 years from dismissal date. Foreclosure waiting period for a conforming loan is typically seven years. However, when bankruptcy includes your foreclosure, you may qualify for a shorter waiting period. The key here is knowing if your foreclosure occurred before or after your bankruptcy. Different rules apply depending on those dates. · The above information is based on a conventional loan (Fannie/Freddie) so if you have a government loan, the waiting period will be slightly less. Your best bet is to speak with a qualified loan officer to see what your options are as each case is different. OM — March 2020
Therese A. Hartmann has 20 years’ lending experience. She is a Licensed Broker, California Dept. of Real Estate #01048403, NMLS # 298291, affiliated with C2 Financial Corporation. For a free consultation, call Therese today at (805) 798-2158.
