For many people, filing bankruptcy or losing a home to foreclosure or a short sale can feel like the end of being a homeowner. The good news is that these actions are not the last opportunity for homeownership. With hard work and the right loan program, you can still purchase a home.
First, we look at three different types of underwriting for home loans. These include Federal Housing Administration (FHA), Fannie Mae and Freddie Mac and Veteran Administration (VA) backed home loans.
The FHA provides a loan guarantee program in lieu of private mortgage insurance so qualified borrowers can get a mortgage loan with a low down payment. The FHA doesn't lend you the money. They guarantee your loan, so the lender doesn't take on a financial risk by extending you credit. The VA works in a similar manner for military members and veterans.
Many conventional mortgages are backed by Fannie Mae and Freddie Mac. These mortgage loan guarantors typically require a larger down payment than would be necessary for an FHA or VA backed mortgage.
For a FHA loan, the waiting period after a bankruptcy is two years. After a foreclosure or deed-in-lieu of foreclosure, it is three years.
A mortgage backed by Fannie Mae or Freddie Mac may have a seven year waiting period if you have had a foreclosure or deed-in-lieu of foreclosure. However, there are exceptions to that timeline. Buying a home post bankruptcy using Fannie Mae or Freddie Mac has a waiting period of two-to-four years.