Mortgage and Portfolio Loan Guide

Mortgage Included in Bankruptcy | Eligibility Answers

There is an interesting guideline with a conventional Fannie Mae mortgage, where the waiting period to obtain new home financing is based on the bankruptcy discharge date, NOT the foreclosure date when mortgage is included in bankruptcy.

This post is for anyone who has ever had a home included in their bankruptcy, and are looking for answers on when they can buy a new home.

Waiting Period – Mortgage Included in Bankruptcy

Let me paint a picture for you to make sure we are on the same page on when this guideline is used.

You filed bankruptcy and listed your home and mortgage(s) tied to the home as included in the bankruptcy.

The bankruptcy was discharged in 2014, but the home that was included in the bankruptcy was not foreclosed until 2017.

Most lenders will tell you that you have to wait 7 years from the foreclosure date before you will be eligible for conventional financing. This is either because the loan officer is unaware or because their company has an overlay that doesn’t allow this guideline. mortgage included in bankruptcy 7 13

But wait a minute, you surrendered that property in the bankruptcy 4 years ago. The guideline states that when including a mortgage/home in a bankruptcy, the waiting period is based on bankruptcy discharge date, NOT the foreclosure date.

This is ONLY on conventional Fannie Mae loan. This guideline does NOT apply on FHA loans.

Who should pay attention

This guideline is for borrowers who vacated the property at the time the bankruptcy was discharged, or around that time. Remember, your intent was to surrender the home as part of the bankruptcy. If you stayed in the home, and were mortgage/rent free for several years, and then expect to buy a house buy using this guideline, there is a good chance the loan will be declined.

The guideline is not designed to help if you did not truly surrender the home when the bankruptcy was discharged.

If you did vacate the property, and got into a rental, paid your rent on time as promised – this guideline is perfect for you.

It is extremely common for lenders to not complete foreclosure proceedings for several years after the home was surrendered in bankruptcy. But this guideline is what saves the day.

Here is the guideline straight from Fannie Mae:

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.

On conventional mortgage loans the waiting period is 4 years from chapter 7 bankruptcy discharge date. Chapter 13 bankruptcy requires 2 years from discharge date or 4 years from the dismissal date.

But if chapter 13 was dismissed, that means the bankruptcy wasn’t completed. This means the debt wasn’t settled per the agreement. So if you foreclose in that scenario, the waiting period will be 7 years.

Where to Look

The guideline above states that the lender must obtain appropriate docs to prove that the mortgage was included in the bankruptcy. What does that mean?

It’s pretty simple actually (if you retained copies of all your bankruptcy docs, not just the discharge).

When filing bankruptcy, there are many schedules (different sections) that are drawn up that identify assets and liabilities that are included and excluded in/from the bankruptcy.

What you are looking for:

  • Schedule A (Real Property – Real estate that is owned by the person filing bankruptcy)
  • Schedule C (Property claimed as exempt from the bankruptcy) – If your property is listed on the schedule C that means you do NOT intend to surrender the home in the bankruptcy
  • Schedule D (Creditors Holding Secured Claims) – This is where you will find the mortgages or other debts that are included in the bankruptcy

Chapter 7 Bankruptcy

With chapter 7 bankruptcy, it is pretty straight forward. If you mortgage was not reaffirmed, your mortgage was surrendered in the bankruptcy along with all of the other debt you listed.

Once the bankruptcy is discharged, your obligations are gone essentially.

Chapter 13 Bankruptcy

With chapter 13 bankruptcy it gets a little tricky. Traditionally, chapter 13 bankruptcy is considered to be a “reorganization of debt”, enabling individuals with regular income to develop a plan to repay all or part of their debts. You and your creditors agree to new terms on your debt per the bankruptcy terms, and you retain the assets associated with that debt. You make your payments per the bankruptcy and once all of your payments have been made, the debt or delinquency is settled.

Some people use chapter 13 bankruptcy as an instrument to actually save their homes from foreclosure. In those cases, typically the mortgage debt that is included in the bankruptcy is any arrearage (past due payments). So the bankruptcy in this case, would act as a tool to help you keep the house while getting caught up on what you owe. In this case, the home would be listed on the Schedule C in the bankruptcy (property claimed as exempt from the bankruptcy).

However, there are many cases where the home and entire mortgage is included in the chapter 13 bankruptcy. If that is the case, the home will NOT be listed on the Schedule C (property claimed as exempt from the bankruptcy), and the home is considered to be surrendered.

Special Note for Chapter 13

When the home is surrendered in chapter 13 bankruptcy, you may need more than the schedule C to convince the underwriter that the home was in fact surrendered in the BK. This (again) is because traditionally chapter 13 is considered reorganization of debt.

Showing additional proof – Each state is different, but if you’re looking to show further evidence of home being surrendered in the bankruptcy, look for a form stating: Chapter 13 Plan and Motions. This will once again declare what is to happen with the real estate, and the debt tied to that real estate upon successful completion of the chapter 13 bankruptcy.

If the home was surrendered, the chapter 13 plan and motions will state it accordingly.

Alternative

If it turns out you do not meet traditional lending standards and guidelines, a portfolio loan may be the alternative solution for you.

A portfolio loan is a mortgage designed for borrowers who don’t qualify for traditional home financing.

Whether the issue is credit related or otherwise, a portfolio loan may be the solution to get you into the home you’re looking to buy while you wait on appropriate time to pass before being eligible for traditional financing.

More on portfolio loans here.

The Most Important Thing

Keep records of all bankruptcy documents.

I cannot tell you how many times I request bankruptcy documents, and all that is provided is proof of discharge.

In order to document everything properly (and make an appropriate lending decision), lenders need all documents associated with the filing. This also includes any schedules, amendments, and discharge of the bankruptcy in question.

If you have had a mortgage included in bankruptcy, and have been told you need to wait to buy a new home based on foreclosure waiting period:

I invite you to reach out.

 

Get your questions answered.

 

If I cannot help, I should be able to point you in the right direction at the very least.

 

 

 

 

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Jumbo Loan After Foreclosure

How to Get a Jumbo Loan After Foreclosure

Getting a jumbo loan (or any mortgage for that matter) after foreclosure requires a close and careful evaluation depending on how much you can put down. Whether you’re getting a jumbo loan, traditional mortgage, or a portfolio loan; there are some things that you can do to prepare yourself to buy a home again.

We’ll look at some specific requirements below and hopefully give you the confidence you need to prepare yourself to buy again after having a foreclosure.

Buying a house with bad credit or damaged credit can be challenging, but it shouldn’t be impossible.

When you know what you’re up against, the task of getting ready and getting approved becomes much more attainable.jumbo loan after foreclosure

With so many folks regaining stability after the great recession, many find themselves to be in a housing circumstance where they are ready to upgrade to a better position, but don’t quite meet traditional lending guidelines. Whether it’s getting a larger home, or moving to a more favorable neighborhood many are ready to start a new chapter.

The light at the end of the tunnel is within reach for more people now than in the most recent number of years.

The problem that arises is the required waiting period after foreclosure or any major credit event like bankruptcy or short sale.

Traditional guidelines on a jumbo loan say you need to wait 7 years after foreclosure, but not if you’re getting a portfolio loan.

What is a portfolio loan?

Portfolio loans are non-traditional mortgage loans that are designed to meet the home financing goals of a borrower with unique circumstances. They are done by small banks, lenders, and credit unions. And these types of loans do not go by Fannie Mae, Freddie Mac, or FHA guidelines.

Whether it’s damaged credit, unique income, or property issues; portfolio loans are designed to be a solution for the tough scenarios.

The main factor when lenders evaluate potential portfolio loan candidates are: equity, reserves, and ability to repay.

More on Portfolio Loans here

What is the waiting period after foreclosure on a Jumbo Loan?

Typically what you’re going to find when seeking a jumbo loan after foreclosure is that 7 years is the waiting period with most lenders, but not with portfolio loans.

With a portfolio loan there are options where no waiting period after foreclosure or short sale is required.buying a house with bad credit

How do you suppose that is possible?

Obviously there are going to be strict guidelines if you’re looking to get around a major hurdle like a recent foreclosure. And the interest rates and costs are going to be higher than standard loans. These loans are considered higher risk. For that reason the lender has to mitigate that risk through pricing adjustments.

If you’re looking to get approved for a jumbo loan, and you’ve had a recent foreclosure, here are some basic things you should keep in mind…

No waiting period after foreclosure or short sale:

  • Minimum credit score is 580
  • 20% down payment
  • Must have 3 tradelines reporting on credit report for at least 12 months
  • Max loan amount is $1MM
  • 6 months reserves minimum (9 months for loans >750,000)

For better rates, and 2 years after foreclosure or short sale:

  • Minimum credit score is 620
  • 25% down payment (or as low as 10% down if credit score is 680+)
  • Must have 3 tradelines reporting on credit report for at least 12 months
  • Max loan amount is $1.25MM
  • 6 months reserves

For even better rates, and 3 years after foreclosure or short sale (ideal scenario):

  • Minimum credit score is 680
  • 30% down payment
  • Must have 3 tradelines reporting on credit report for at least 12 months
  • Lax loan amount is $1.25MM
  • 9 months reserves

Not all products are available in all states, and guidelines can change. But I at least wanted to communicate what can typically be expected. Reach out to me for your specific questions and scenario.

Although 30 year fixed options are available, it typically makes more sense to do these on a 5 year or 7 year ARM because of the rate difference. The goal is to refinance into something more suitable when the waiting period from foreclosure meets traditional guidelines.

Keep in mind, for primary residence, in many cases there are no pre-payment penalties on these loans.

Portfolio loans like these are a temporary fix for temporary circumstances. In most cases, it still makes more sense than renting because you’re building equity in the home you want, in the area you desire.

Portfolio loans are also available for business owners, and investors.

How long does it take to close?

Typically these loans take longer to close than the typical mortgage because of the risk involved and the special attention required.mortgage after short sale

The first step is to get pre-approved.

Although some close within 45 days, some can take 60 days.

The most important thing you can do to reduce the amount of time it takes to close your loan is to provide everything that is requested as soon as you can. Typically, if the communication is sound, and what is requested is provided, the process is much more smooth.

For portfolio loans especially, having a thought out letter of explanation can go a long way. The reason I stress that is because these loans are treated with more common sense logic than most loans you’ll find. The lender truly tries to find a way to say “yes”. But if the story doesn’t make sense, and the explanation is shaky, things could become more difficult than they need to be.

Trying to get by with the bare-minimum documentation often results in frustration and delays.

Be honest, and be transparent. Don’t wait for the lender to find an issue that you know exists. Be open about it so that a solution can be discussed.

portfolio mortgage lendersIf you have had a recent bankruptcy, foreclosure, or short-sale and you’re back on your feet, I invite you to reach out to me. I can’t help in every scenario, but many times I am able to make it work even if other lenders have said the loan cannot be done.

When you reach out, you won’t be connected with an assistant or someone overseas, you’ll be connected with me directly. About me

I hope you found this to be helpful, and I look forward to helping you accomplish your home ownership goals.

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Adam Lesner | NMLS 198818 | Troy, Michigan

Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona, California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.