By David Johansen of Homestar Mortgage

The recent economic environment has seemed to touch almost every American in one way or another. Unfortunately, this has been more of a negative impact than that of a positive one. Currently millions of Americans have found themselves in financial distress over the past few years; thus finding out that “good” credit can turn to “bad” credit, as many pursue actions such as a bankruptcy, short sale, or even foreclosure. But, even though many have fallen onto hard times, remember that there is always a light at the end of the tunnel!

A question that is presented to me numerous times a week is when my clients will be able to purchase a home after such events that cause derogatory credit. Below is a simple, easy to follow, format on the current underwriting standards that bank underwriters utilize when evaluating a mortgage application. The “FHA” loan referenced below refers to a Government backed loan, which usually has more flexible underwriting guidelines, and the “Conventional” refers to Fannie Mae backed mortgage loans.  It is IMPERATIVE to note that these are only guidelines, and your mortgage loan officer will be able to help you identify exceptions to these rules. There are also other factors (such as re-established credit, income, employment, etc.) beyond these items that need to be reviewed a mortgage loan officer as well; each individual mortgage application has its own story:

Short sale:
FHA:  3 years UNLESS the borrower had made all installment debt payments within the month due for the 12 months prior to the short sale. In some instances, you can purchase a home right after participating in a short sale.
Conventional:  2 years for transactions with a maximum LTV of 80%
 

Foreclosure:
FHA:  3 years
Conventional:  7 years
 

Chapter 7 Bankruptcy
FHA: 2 years
Conventional: 4 years
 

Chapter 13 Bankruptcy
FHA:  1 year into payment plan as long as payments are made on time
Conventional:  2 years from the discharge date

If you would like more information regarding home financing please contact:

David Johansen
Homestar Mortgage
Loan Officer
Ph.: (401) 454-3300 X311
Cell: (401) 954-2858
Fax: (401) 454-3399
Licenses: RI 22078, MA MLO 22078, FL