Mortgage Monday: Bankruptcy and Mortage

Bankruptcy and Mortgage

Freddie Mac and Fannie Mae have requirements for borrowers who have declared bankruptcy or who have gone through foreclosure. These requirements include a waiting period before applying for a home mortgage loan, if Fannie or Freddie buy the loan: waiting two years after filing Chapter 13 bankruptcy, four years after filing Chapter 7 bankruptcy and five years after a foreclosure. Borrowers who have been foreclosed on must put ten percent down and have a credit score of 680 or higher, and must wait an additional two years before they become eligible to purchase a second home or an investment property.

The agencies also have provisions for extenuating circumstances or “credible excuses” for the bankruptcy or foreclosure. Credible excuses can be interpreted to mean that the likelihood of a recurrence is very low. People lose their jobs, they get sick and cannot work, they have accidents, they suffer a death in the family, they are a victim of fraud. Not one of these in itself will be viewed as an extenuating circumstance, but a combination of them might be. What ever the reasons, the lenders will be looking at the likelihood that the circumstances could recur.

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