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Friday, May 10, 2013

Fear Not Friday: 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

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!