Tag Archives: bankruptcy

You ARE Worthy!

Life is hard, and at times, just not fair!  Things happen – whether it’s a job loss, divorce, decline in home values, medical emergency or death in the family.  These things wreak havoc with our financial well-being.

The above reasons, and I am sure many more, played a large role in people filing bankruptcy, losing their home to foreclosure, or for some, having to sell their homes as a short sale just to get out from under.  It’s tough, and for those of you who experienced these major set-backs, I am truly sorry you had to deal with such devastation!

ID-100142021You might be thinking your chances of owning a home for the first time, or ever again, will never happen after these experiences.  I am here to tell you that we all have second chances and you are worthy of being a homeowner!  But how?

First, it helps to know the general guidelines for loan qualification after a short sale, foreclosure or bankruptcy.  The guidelines vary by the type of loan you take out.  FHA, the Federal Housing Administration, will be more lenient than Fannie Mae or Freddie Mac, which offer conventional loans.  Sometimes, there are extenuating circumstances that could lessen the wait period, but those are considered on a case-by-case basis.

Bankruptcy – home financing eligibility date is taken from the date the bankruptcy was discharged from the courts.  It is also dependent on the type of bankruptcy – Chapter 7 or 13.  I will advise for Chapter 7 bankruptcies, but the wait period may be less with a Chapter 13 if certain requirements are met.

  • FHA & VA:              2 years
  • Conventional:   4 years

Foreclosure – eligibility date is taken from the latter of the sheriff’s sale date or the date the claim was paid to FHA.  The claim date is only applicable if the loan foreclosed upon was FHA financing.  This date is usually 3-6 months after the sheriff’s sale.  Conventional financing could have a shorter waiting period depending on circumstances and other criteria.

  • FHA:                          3 years
  • VA:                             2 years
  • Conventional:    7 years

Short Sale – eligibility date is the date the sale of the home took place.  The waiting periods are the same as a foreclosure, except with conventional, where the waiting period can vary depending on the circumstances, as well as the amount of money you have down.

Once you’re over that waiting period, then what?  As lenders, we certainly want to see that you’ve re-established credit.  We understand that your credit and finances took a beating during that time – it happens!  But, we want to see that you came out in a better place.  We’re looking for on-time payments and a lack of derogatory credit, such as collections or charge offs.

Long and short of it – you ARE worthy, and after having a bankruptcy, short sale or foreclosure in your past, there is hope of becoming a homeowner!  We’d love to help!

*Image compliments of Stuart Miles — freedigitalphotos.net

 

You … from the Underwriter’s Perspective – The First “C”

Do you cringe or shudder when you hear the word “underwriter?”   Do they seem like an untouchable person?  Almost like the Wizard of Oz?  It’s not a bad word and certainly not someone to fear.  As a matter of fact, good underwriters are actually our allies.  They want to help people buy homes.  But how do they do that?

In the mortgage world, we have something called the 4 C’s.  These are the things that an riskunderwriter reviews to determine your credit worthiness and ability to get a loan.  The first “C,” and I would say the most important “C,” is Credit.

The first step is looking at your score.  Score requirements differ based on the loan type you’re doing.  In general, a 620 middle score is required for FHA financing and usually we need 680 for conventional financing.  Some programs,  including first time buyer programs, require a 640 score.  Scores aren’t created equal — in general, the more history and on-time paid accounts you have, the better.  This isn’t a suggestion to go open accounts to get more credit; that could actually bring your scores down. And so you know, scores can range from about 300-900.  The higher the better, of course!

This is just part of what the underwriter looks at.  It should go without saying that your payment history is key, so making payments on time is incredibly important.  The underwriter is primarily concerned with the last 12 months.  Consistent lates are a problem, but sometimes, if they are confined to window of time, you may be able to write an explanation to tell the underwriter the “why” it happened and the “why” it won’t happen again.

What about that collection account that was put on your report years ago?  This depends on the size of the collection and what it was from.  Medical collections are something we can ignore, but a collection that was in the last 12 months or so, may require that you pay it off.  Lots of collections are a cause of concern for an underwriter. There are items called profit and loss accounts too — which means the creditor wrote off the past due amount.  Next step is for this to go to collection.  These typically need to be paid.

How about disputes?  Most people aren’t aware they have disputes.  You may have one if you disagreed with a bad mark on your report or disagreed with anything that the creditor reported.  Disputes  stop the account from affecting your score – positively or negatively.  This is why lenders don’t want to see them on the report and will require, that with your lender’s help, the verbiage is removed from the respective accounts.  While in the loan process, make sure you don’t dispute anything.

Are you an authorized user on an account?  This means that someone, usually your parents, may have added you to an account to help you with credit, like a gas card.  You’re not responsible for this account or this balance, so it’s not actually helping or hurting you.  It doesn’t affect your scores, but is something lenders remove from their reports or we will have to count the monthly debt against you.

And last, what about major derogatory items — bankruptcies, foreclosures, short sales or judgments?  These can absolutely be deal breakers.  Judgments will actually need to be paid and typically prior to closing on the house.  Regarding the other items, each loan type has different waiting periods from the date the event occurred.  Not only that, the underwriter will look for a good letter of explanation as to why the it occurred and you must have re-established good credit.

This isn’t an all-inclusive list of what the underwriter is looking for, but it’s a good start.  Knowing and understanding your credit is the first step to homeownership.  I am happy to help you prepare for meeting today’s credit guidelines.  And come back to read about the next “C” — Capacity.