Hurry up and wait: how long you will have to wait when turned down for
derogatory credit
Hurry up and wait: how long you will have to wait when
turned down for derogatory credit.
Perhaps
one of the most frustrating experiences when looking for a home is that moment
when you are told you have to wait to purchase due to your credit issues. Two
of the biggest hits your credit can take, be it bad choices or bad luck, are
previous foreclosures or filing for Bankruptcy. There are specific eligibility
dates for each of these situations and I have the inside scoop. (By the way,
did you know that VA loans have different eligibility dates?)
Eligibility dates after Foreclosure or
Bankruptcy for Conventional-Conforming loans
·
Foreclosure
o
A foreclosure occurs when the home was given
back to the lender, without owner participation and done with a legal
proceeding.
o
If you have had a previous foreclosure, you are
eligible to apply 7 years from the date the foreclosure was completed and
transferred back to the lender to date of the credit report. *If you have had
extenuating circumstances (non-recurring events that are beyond your control
that result in sudden, significant, and prolonged reduction in income or a
catastrophic increase in financial obligations) you are eligible to apply 3
years from the foreclosure date).
·
Short Sale, Deed in Lieu of Foreclosure
o
A short sale is when the lender agrees to accept
payoff for less than amount owed. A Deed in Lieu of Foreclosure is when the
borrower fails to satisfy the loan obligation and assigns the title to the
lender to avoid foreclosure proceedings.
o
In either case, the eligibility dates depend on
how much of a down payment you can make on the new loan:
§
If less than 10% down, you are eligible 7 years
from the date the sale was closed and transferred to the owner.
§
If 10% down, you are eligible 4 years from the
date the sale was closed and transferred to the new owner. *Waiting time is
decreased to 2 years with acceptable extenuating circumstances.
§
If 20% down, you are eligible 2 years from the
date the sale was closed and transferred to the new owner.
·
Chapter 7 Bankruptcy
o
A Chapter 7 Bankruptcy occurs when the debts are
discharged (you do not pay any debts).
o
Once credit has been re-established, with no
derogatory ratings, you are eligible 4 years from the discharge date. *It is
possible to have a 2 year waiting period with extenuating circumstances.
·
Chapter
13 Bankruptcy
o
A Chapter 13 Bankruptcy occurs when debts are
paid back on a monthly scheduled payment plan.
o
With good credit, a satisfactory employment
history and other considerations, it is possible to apply for a new loan while
still paying on a Chapter 13 Bankruptcy. You will have to have made verifiable
payments for at least one year and there are other legal requirements for the
loan to be approved, such as approval from the bankruptcy court.
Eligibility dates after Foreclosure or
Bankruptcy for VA loans
·
Foreclosure, Deed in Lieu of Foreclosure,
Chapter 7 Bankruptcy
o
For VA loans, these events are treated the same
way.
o
For these circumstances, you are eligible 2
years from the date the foreclosure was completed and/or transferred back to
the lender. * For extenuating circumstances such as unemployment, prolonged
strikes, medical bills not covered by insurance but not including divorce, you
can be eligible within 12-23 months if credit has been re-established and paid
as agreed.
·
Short Sale
o
In the event of a short sale, you are eligible 2
years from the date the sale closed and transferred to the new owner.
·
Chapter 13 Bankruptcy or Consumer Credit
Counseling
o
With good credit, a satisfactory employment
history and other considerations, it is possible to apply for a new loan while
still paying on a Chapter 13 Bankruptcy. You will have to have made verifiable
payments for at least one year and there are other legal requirements for the
loan to be approved, such as approval from the bankruptcy court.
If you have any questions, please feel free to email me
kellewirt@gmail.com or leave a comment
below!
Happy Homebuying!
