Mortgage Guideline Tip - Waiting period for derogatory credit

Several of our clients come to us after some sort of mishap with their credit or previous mortgage.  Whether it was a foreclosure, short sale, or bankruptcy, they all ask the same thing.  When can I purchase again?

It is an important question for the borrower to know so that they can prepare.  The complicated part is that different derogatory credit requires different waiting periods, for different loans.  I have compiled a list that shows the waiting period that is required for each loan.

Conventional Loans - 

• Chapter 7 Bankruptcy - 4 year from the discharge or dismissal date
• Chapter 13 Bankruptcy - 2 years after the discharge date or 4 years from the dismissal date
• Multiple Bankruptcies - 5 years from the most recent discharge o dismissal date
• Foreclosure - 7 year waiting period is required, and is measured from the completion date of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower
• Short Sale - 4 year waiting period is required

FHA Loans - 

• Chapter 7 Bankruptcy - 2 years from the discharge date
• Chapter 13 Bankruptcy - 1 year waiting period is required.  Plan must be paid out and discharged prior to closing.
• Foreclosure - 3 year waiting period from settlement
• Short Sale - 3 Years waiting period - Extenuating Circumstances apply

VA Loans - 

• Chapter 7 Bankruptcy - 2 years from discharge date
• Chapter 13 Bankruptcy - 1 year waiting period.  Plan must be paid out and discharged prior to closing.
• Foreclosure - 2 year waiting period from settlement
• Short Sale - 1-2 years waiting period.  If less than 2, a letter of explanation is required from the borrower and supporting documentation to establish an extenuating circumstance and to confirm the short sale was not due to credit negligence or taking advantage of a declining market

USDA - 

• Chapter 7 Bankruptcy - 3 years since date of discharge
• Chapter 13 Bankruptcy - 3 years from date of discharge
• Foreclosure - 3 years since settlement
• Short Sale -  None

If you are unsure what waiting period you fall into, please call or email me with any questions.