95% Ltv possible after bankruptcy & foreclosure?

[Anne2012]

Our BK was discharged 2 years ago, & foreclosure was 3 years ago. We're looking at buying again, but need a loan higher than the fha loan limit. anyone know how to do that? We have 5% to put down. Credit score 670-680.

help!

[justbroke]

(NOTE: This information is valid as of November 19, 2016 when it was posted. Fannie Mae can change these rules at any time. In fact, the most recent update was October 24, 2016.)

I have specifically been looking in to this as I plan to purchase a new property next year. I'm looking at both FHA and Conventional (GSE-backed) loans. You may have difficulty with a conventional loan because some lenders are just tough to deal with. You can start by looking at the current Fannie Mae Derogatory Event Fact Sheet for conventional loans. You have both a bankruptcy and a foreclosure (see note 1 below). According to that fact sheet, you may only need 2 years of seasoning for "extenuating circumstances". You appear to have the requisite 2 years, but do you have and are able to document "extenuating" circumstances?

I would also suggest that you get those those credit scores all above 680 so that your middle score is quite high. In fact, having a 700+ middle score would probably be easiest especially when dealing with a high debt-to-income ratio (see below).


New Requirements (Conventional - Fannie Mae)

• Borrowers are eligible to the maximum LTV after 2 years with extenuating circumstances (no longer restricted to max 90% LTV).
• Borrowers are eligible to maximum LTV after 4 years without extenuating circumstances

Fannie Mae Score Requirements (as of 10/24/2016)

Based on the eligibility matrix you should probably have a score of 680 or better to get a CLTV (combined LTV) greater than 75%. Your debt-to-income (DTI) ratio will also affect what you can do with some loans requiring a 700+ (see eligibility matrix).

Please realize that banks offering mortgages sold to Fannie Mae may also have overlays with more requirements. This may, and typically does, require you to shop the mortgage.

Fannie Mae uses the following scoring models so make sure your FICO scores are using these models as you score "will" differ based on the scoring model actually used!:

• Equifax Beacon® 5.0;
• Experian®/Fair Isaac Risk Model V2SM; and
• TransUnion FICO® Risk Score, Classic 04.

Resources

Derogatory Credit Event Fact Sheet - Fannie Mae
General Requirements for Credit Scores (08/30/2016) - Fannie Mae - Published 10/24/2016
Eligibility Matrix - Fannie Mae - PDF


Notes:

1. When both a bankruptcy and foreclosure are disclosed on the loan application, or when both appear on the credit report, the lender may apply the bankruptcy waiting period if the lender obtains the appropriate documentation to verify that the mortgage loan in question was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting period must be applied.

[Anne2012]

Thanks! I read these, but it appears there are income limits, which would disqualify us. Am I reading it right?

[Anne2012]

Never mind, I found it! Conventional 97 + new guidelines = new home!

[Anne2012]

So far we are denied. Extenuating circumstances mean either a divorce, or that someone was literally on their deathbed. All other circumstances = 4 year waiting period for conventional loans

[justbroke]

I thought extenuating circumstances includes reasons beyond your control, such as being laid off. If you only shopped this through a single lender, please realize that you need to shop this around to probably 3-5 lenders. Remember that lenders can add their own overlays and you may have run up against a lender with an additional overlay.

B3-5.3-08: Extenuating Circumstances for Derogatory Credit (12/16/2014)

Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.

If a borrower claims that derogatory information is the result of extenuating circumstances, the lender must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include

• documents that confirm the event
  • such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.; and
• documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event
  • such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment), etc.

https://www.fanniemae.com/content/gu...b3/5.3/08.html

[Anne2012]

I've talked to 4 lenders so far who have all said the same thing. Actually, one is running our scenario by u/w, the rest have said no up front. All have stated that extenuating circumstances have to be extreme, & while there are several what I would consider extenuating circumstances for us, & many reasons of how circumstances have changed (better insurance, making 40% more), I don't know if that makes a difference to them. So far not.

Thank you for your encouragement though! I'll check a few more places.

[justbroke]

Well, the actual Fannie Mae guide has, as a direct example, loss of income (layoff, severance). I will add though that the individual lenders are allowed to do overlays and I'm pretty sure what you are facing is, in fact, the overlay issue. It's like shopping for an FHA mortgage where the overlays typically have you denied cold turkey.

In the end, the lenders do not have to issue a loan. These loans are resold or capable of being resold and backed by Fannie Mae. The lenders add overlays to give them a little more protection and insure that they won't issue too many bad loans under the guidelines, have an inability to sell the loan in the secondary market, or that the GSE (Fannie Mae or Freddie Mac) won't guarantee the loan (due to underwriting issues).