FHA credit guidelines

[hopejones]

I have taken the following excerpt directly from the FHA handbook.
THIS IS THE LINK:

http://www.fhaoutreach.gov/FHAHandbook/prod/infomap.asp?address=4155-1.4.C.2.g

THIS IS THE EXCERPT:
g. Chapter 7 Bankruptcy

A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage, if at least two years have elapsed since the date of the discharge of the bankruptcy. During this time, the borrower must have

* reestablished good credit, or
* chosen not to incur new credit obligations.


An elapsed period of less than two years, but not less than 12 months may be acceptable for an FHA-insured mortgage, if the borrower

* can show that the bankruptcy was caused by extenuating circumstances beyond his/her control, and
* has since exhibited a documented ability to manage his/her financial affairs in a responsible manner.


Note: The lender must document that the borrower's current situation indicates that the events that led to the bankruptcy are not likely to recur.

[yellowstone]

Also directly from the FHA handbook:

f. Previous Mortgage Foreclosure

A borrower is generally not eligible for a new FHA-insured mortgage if, during the previous three years

* his/her previous principal residence or other real property was foreclosed, or
* he/she gave a deed-in-lieu of foreclosure.


Exception: The lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.

Divorce is not considered an extenuating circumstance. An exception may, however, be granted where a borrower's loan was current at the time of his/her divorce, the ex-spouse received the property, and the loan was later foreclosed.

Note: The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.

[marcer]

These post are perfect examples of why mortgage professionals should invest time to understand the programs offered instead of just copying and pasting information from the 4155.

FHA guidelines, while ambiguous and open to much interpretation on some items, are very clear on seasoning for the different adverse credit states While I am not a BK expert...I leave that to those who know better, the rules regarding discharge of property through BK and sale of property following foreclosure are in no way related. The seasoning requirements for a mortgage discharged through BK will follow the seasoning requirements for BK. If the property is Shorted or foreclosed on, then the seasoning requirements are 3 years from sale date. To be even clearer...if property was disposed of through a short sale and borrower(s) were/was current the prior to short sale agreement and leading up to the date of sale, there are no seasoning requirements. FHA will not allow borrower(s) to finance with FHA if short sale was to leave current home in favor of similar cheaper home in same area. If borrower(s) experienced any delinquencies prior to short sale agreement and leading up to sale, borrower must wait 3 years following the date of sale. No exceptions.

In short...and I truly hope this helps all to understand. Mortgage discharges through BK7 = 2 years from discharge
Foreclosure and or adverse mortgage payments on short sale = 3 years from sale date
Short Sale w/paid as agreed = No seasoning

Also....VERY IMPORTANT.. some U/W will condition for date of reconveyance. I've seen this with several different lenders. They all hide behind speaking with HUD and it's their policy...strange, there is no mortgagee letter addressing this. What is known to be true, however, is that FHA requires reconveyance on it's own reo's before paying out lender losses

Look ma...no copy and paste

[mlopez60120]

Great information but when one has Foreclosure and bankruptcy on the same mortgage what is the waiting period. BK happened first and the mortgage was included in the BK and discharged the foreclosure is happening now 3 years after BK discharged

[denisec]

Marcer, can you please leave me your phone # again, I went in to the post to get the number today, and it's gone...? Thanks, Denise

[marcer]

Marcer, can you please leave me your phone # again, I went in to the post to get the number today, and it's gone...? Thanks, Denise

Denisec~

I've sent contact information vis email.

[GettingGoing]

These post are perfect examples of why mortgage professionals should invest time to understand the programs offered instead of just copying and pasting information from the 4155.

FHA guidelines, while ambiguous and open to much interpretation on some items, are very clear on seasoning for the different adverse credit states While I am not a BK expert...I leave that to those who know better, the rules regarding discharge of property through BK and sale of property following foreclosure are in no way related. The seasoning requirements for a mortgage discharged through BK will follow the seasoning requirements for BK. If the property is Shorted or foreclosed on, then the seasoning requirements are 3 years from sale date. To be even clearer...if property was disposed of through a short sale and borrower(s) were/was current the prior to short sale agreement and leading up to the date of sale, there are no seasoning requirements. FHA will not allow borrower(s) to finance with FHA if short sale was to leave current home in favor of similar cheaper home in same area. If borrower(s) experienced any delinquencies prior to short sale agreement and leading up to sale, borrower must wait 3 years following the date of sale. No exceptions.

In short...and I truly hope this helps all to understand. Mortgage discharges through BK7 = 2 years from discharge
Foreclosure and or adverse mortgage payments on short sale = 3 years from sale date
Short Sale w/paid as agreed = No seasoning

Also....VERY IMPORTANT.. some U/W will condition for date of reconveyance. I've seen this with several different lenders. They all hide behind speaking with HUD and it's their policy...strange, there is no mortgagee letter addressing this. What is known to be true, however, is that FHA requires reconveyance on it's own reo's before paying out lender losses

Look ma...no copy and paste

This is some very good information and it's nice having someone here that appears to know what they are talking about. I do have one question though. What about someone who filed ch7 and had their mortgage discharged however continued to live in the house until the bank finally foreclosed on the discharged mortgage 2 years later? Would the seasoning date be 2 years post discharge or 3 years after the bank finally transferred the property back to their name?

[marcer]

This is some very good information and it's nice having someone here that appears to know what they are talking about. I do have one question though. What about someone who filed ch7 and had their mortgage discharged however continued to live in the house until the bank finally foreclosed on the discharged mortgage 2 years later? Would the seasoning date be 2 years post discharge or 3 years after the bank finally transferred the property back to their name?

Thank you GettingGoing. I'm glad I could provide you with sound information. The rules are still the same. Discharge date is the date used for seasoning. The fact you were able to stay in the home for an additional 2 years has no bearing on seasoning.

[GettingGoing]

Is this the case for RD loans as well? Is there any way you could PM me your email address? I would really appreciate it. Thanks

[marcer]

Is this the case for RD loans as well? Is there any way you could PM me your email address? I would really appreciate it. Thanks

This is not the case for Rural Development...at least not the seasoning requirements.

1. RD requires 3 years seasoning for Chapter 7 and 12 month payment history for Ch. 13. Foreclosures where there has been a loss of security requires 3 year seasoning. No loss requires 12 mos.

2. FHA requires 2 years chapter 7 discharged 2 years seasoning. Ch. 13 2 years or if less than, need 12 mos. satisfactory payment. Foreclosure or Short Sale with Adverse mortgage payment is 3 years from date of sale

3. Agency---Fannie Mae/ Freddie Mac Chapter 7 requires 2 years WITH EXTENUATING CIRCUMSTANCES or 4 years w/o. Chapter 13 is 2 years from discharge or dismisal. Dismisal must be without prejudice. Foreclosure with Extenuating circumstances is 3 years. Financial mismanagement is 7 years. Deed-in-Lieu of Foreclosure is 2 years from completion with Extenuating circumstances. 4 years for financial mismanagement.

4. VA is 2 years Ch. 7 discharge, but will consider 1-2. Ch. 13 will allow for 12 months payment history. Foreclosure seasoning is 2 years provided no outstanding debt to federal goverment. Must be paid prior to applying for new VA loan. Less than 2 years is allowable if veteran has restablished credit and foreclosure was extenuating in circumstance.

Hope this helps and PM sent...typed in a hurry...forgive errors

[MOMof3]

We were discharged on our Chapter 13 and I have not found a single broker that will work with me to get an FHA refi on my house. 4 different people have said I have to be 2 years past discharge, which is what it appears to be for chapter 7, but apparently that applies to Chapter 13 now too. Ridiculous. If anyone has any suggestions, please message me We are paying 8.5% interest and I'd hate to do it for another 2 years, I'd rather save that money to put towards a new house, my kids education, anything but interest...

[GettingGoing]

We were discharged on our Chapter 13 and I have not found a single broker that will work with me to get an FHA refi on my house. 4 different people have said I have to be 2 years past discharge, which is what it appears to be for chapter 7, but apparently that applies to Chapter 13 now too. Ridiculous. If anyone has any suggestions, please message me We are paying 8.5% interest and I'd hate to do it for another 2 years, I'd rather save that money to put towards a new house, my kids education, anything but interest...

I cant help you when it comes to the ch13 however I have spoke to numerous brokers lately and all of them say that the information "Marcer" is giving is wrong and that the clock starts from the time the property is removed from your name and not from the discharge date. The all say that you could have been discharged 10 years ago and if the bank decided to wait till now to foreclose then your wait starts now.

[marcer]

I cant help you when it comes to the ch13 however I have spoke to numerous brokers lately and all of them say that the information "Marcer" is giving is wrong and that the clock starts from the time the property is removed from your name and not from the discharge date. The all say that you could have been discharged 10 years ago and if the bank decided to wait till now to foreclose then your wait starts now.

Key word...Broker's. Listen, I've stated it over and over and rather clearly...lenders have over-lays which may limit the type of adverse credit allowed. Most BROKERS will tell you they need a 640 credit score...some as high as 680 for a FHA loan. Does this make them correct..No. FHA is 500 with 10% down. I have done countless loans where property was included...and some which were re-affirmed through bk. I have had very good success.

Moreover...and this is what really upsets me...you very well may have prejudiced any thought of MOMof3 seeking further help. I guess because she spoke to several loan officers, which were either to lazy, to stupid, or both, they must all be correct. The simple truth all...FHA has been around 50 plus years, the average loan officer 4, the average fha experience of the average loan officer- 2. and mosty of them would still be shucking subprime loans if they could. I hate to copy and paste...but waiting periods for FHA on FHA Insured Mortgage:

2. Eligibility for FHA-Insured Financing, Continued
4155.1 4.A.2.g
Waiting Period for Borrowers With Past Delinquencies, Defaults or Claims on FHA Loans

If the borrower has had past delinquencies or has defaulted on an FHAinsured
loan, there is a three-year waiting period before he/she can regain
eligibility for another FHA-insured mortgage.
The three-year waiting period begins when FHA pays the initial claim to the
lender. This includes deed-in-lieu of foreclosure, as well as judicial and other
forms of foreclosures.

4155.1 4.C.2.h Chapter 13 Bankruptcy A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the lender documents that

· one year of the pay-out period under the bankruptcy has elapsed
· the borrower’s payment performance has been satisfactory and all required
payments have been made on time, and
· the borrower has received written permission from bankruptcy court to enter
into the mortgage transaction.
TOTAL Scorecard Accept/Approve Recommendation
Lender documentation must show two years from the discharge date of a Chapter 13 bankruptcy. If the Chapter 13 bankruptcy has not been discharged for a minimum period of two years, the loan must be downgraded to a Refer and evaluated by a Direct Endorsement (DE) underwriter.

Here is another key word---REFER. Most BROKERS will only approve with an Accept. Some will do a REFER. It's not that it isn't allowed, but rather many of the conduit or correspondant brokers don't want to put there CHUMS number on the line. One un-insured loan can close a company.

I don't know everything...I'm constantly learning things every day, but what I do know is...I can't count the numbers of borrowers who have purchased new Post BK and with previous mortgage included.

[MOMof3]

We did not foreclose, we kept our house through our Chapter 13 and are now discharged. I had one person tell me that it would have been better to refi while we were still IN our plan...that sucks, because we finished it!! We make to much money for a modification and we are not behind on our payments everything is current. Looks like maybe I just need to be persistent and keep trying to find a broker or lender that is willing to take the extra step or just wait until we are two years out, at that point our bankruptcy should be off our credit report too.

[GettingGoing]

We did not foreclose, we kept our house through our Chapter 13 and are now discharged. I had one person tell me that it would have been better to refi while we were still IN our plan...that sucks, because we finished it!! We make to much money for a modification and we are not behind on our payments everything is current. Looks like maybe I just need to be persistent and keep trying to find a broker or lender that is willing to take the extra step or just wait until we are two years out, at that point our bankruptcy should be off our credit report too.

What do you plan to do with your current house you live in? Sell it? Rent it out?

[marcer]

We were discharged on our Chapter 13 and I have not found a single broker that will work with me to get an FHA refi on my house. 4 different people have said I have to be 2 years past discharge, which is what it appears to be for chapter 7, but apparently that applies to Chapter 13 now too. Ridiculous. If anyone has any suggestions, please message me We are paying 8.5% interest and I'd hate to do it for another 2 years, I'd rather save that money to put towards a new house, my kids education, anything but interest...

Momof3~

You do not need to wait 2 years from discharge!!!!! While 2 years is ideal, less than two is completely do-able. The post I provided above and which was taken from the 4155 clearly addresses it. What you are being told is in-correct as it applies to FHA. It may be as mentioned above...to lazy, to stupid, both, or......their overlays will not allow it. An over-lay is an additional guideline on top of the exisiting guidelines in an effort to make the loan higher quality and more apt to be insured or bought. And, since FHA did not incur a loss, no additional waiting period is needed.

An example of overlays, and why some can do and others cannot. FHA requires 10% down on credit scores 500-5-579, 5% down 580-599 and 3.5% for scores above 600. If over 600, the funds can come from any close source=cept interested party, We have an overlay to this which requires All required down payment come from borrower if scores less than 640. This is not a FHA requirement, but rather our requirement. Again...in short...you can refinance your home with less than 2 years discharge ch 13.