Waiting Periods for Derogatory Credit Events

We all know that we are coming out of a tough economic environment. And tough economic environments cause tough credit situations for a lot of folks.

I run across many good people who through no fault of their own have run into financial hardship but want to purchase a new home.  Many are amazed at how quickly they can qualify to purchase a new home provided they re-establish credit and don’t have any further credit problems.

Here is a quick GUIDE to the various loan programs and the waiting periods for the various credit issues:

Conventional Loans

(Conventional Loans are loans the conform to Fannie Mae and/or Freddie Mac Guidelines)

  • Foreclosure:  7 year from the date the foreclosure was completed (or, 3 years from the foreclosure date with extenuating circumstances and with 10% down payment.).
  • Short Sale:
  • 7 years from the date the sale was closed and the title transferred to the new owner for less than 10% down payment.
  • 4 years from the date the sale was closed and transferred to the new owner with 10% or greater down payment.
  • 2 years form the date the sale was closed and transferred to the new owner with 20% down payment.
  • Chapter 7 Bankruptcy: 4 years from the discharge date.  2 years with extenuating circumstances.
  • Chapter 13 Bankruptcy: 2 years from the discharged date.  4 years from the dismissal date.

FHA Loans

  • Forclosure (or Deed in Lieu of Foreclosure):  3 years from the date of the foreclosure, with re-established credit.
  • Short Sale: 3 years from the date of the closed sale when the deed transferred to the new owner.
  • Chapter 7 Bankruptcy:  2 years from the date of the discharge of the bankruptcy.
  • Chapter 13 Bankruptcy: 1 year after the payout period has begun, so long as everything has been paid on time, and with court approval.

VA Loans

  • Foreclosure: 2 years from the date the foreclosure was complete.
  • Other Circumstances: All other derogatory credit situations mirror the time-frames of an FHA loan.

USDA Rural Housing

  • Chapter 7 Bankruptcy: 3 years from the discharge date.
  • Other Circimstances:  All other derogatory credit situations mirror the time-frames an an FHA loan.

All of these rules allow for shorter time periods from the derogatory event, given ‘extenuating circumstances’, such as extended job loss, death of a primary wage earner, etc.  Extenuating circumstance will require some documentation about the circumstances.

The good thing here is that many, many people think that a bankruptcy or a foreclosure will damage your credit for great lengths of time, if not forever.  That, I am happy to say, could not be further from the truth.  If you or someone you know has gone through a major derogatory credit event, then I would be happy to help you rebuild and get ready to buy a home when the time comes.

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