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Buying After Bankruptcy

When the economy fell just over a decade ago, many of American’s lost their careers and their homes. And since then they have been struggling to bring themselves back to where they came from.

If you fall among the percentage of American’s who declared bankruptcy during this period in time, you are not alone. But you should definitely not think that it means you can no longer buy a house.

Do not let bankruptcy be the end of your home-buying journey.

Generally speaking, foreclosure leads to bankruptcy. Foreclosure means deficiency (or lacking). So, let’s say you owe $150,000 on your home still and in the foreclosure or sheriff sale, it is sold for $50,000. That means, realistically, you still owe $100,000 on the home.

Now, generally speaking, this final amount is unrealistic for an individual or a family to pay. So declaring bankruptcy to clear their name of the foreclosure and the deficiency.

While this may seem like the end of the line, it most definitely is not. First and foremost, there is a waiting period between declaring bankruptcy and applying for another mortgage to purchase a new home.

Here are the waiting periods for the four major loans available:

FHA Loans 2 years

*note: this 2 year waiting period is for Chapter 7 FHA Mortgage. You can actually be paying on a Chapter 13 Mortgage and still be approved.

VA Home Loans 2 years

Conventional Mortgages 4 years

USDA Home Loans 3 years

Once you have surpassed this time frame, you can then begin to entertain the idea of applying for a new mortgage. There are always exceptions to every “rule,” and this is the standard across the board. But at times, there are some circumstances where you can qualify for additional loans before this time period is up.

Now, these guidelines are when your foreclosure is tied up in your declaration of bankruptcy. The foreclosure waiting period for a conventional loan is seven years. But, depending on the period of time between the foreclosure and your declaration of bankruptcy (either before or after), you may qualify for a reduction in the waiting period.

Foreclosure then bankruptcy

When your house is foreclosed upon before you declare bankruptcy, things are much more simple. The waiting period begins at the date of the bankruptcy discharge date. For example, if your home was foreclosed in January 2005, filed for bankruptcy in October 2005, and the bankruptcy was discharged in December 2005- the waiting period begins in December 2005. Based on the standards for the conventional mortgage waiting period, you would be eligible for another mortgage in December 2009.

Bankruptcy then foreclosure

Sometimes the roles are reversed. Whether intentional or not, there are times where the bankruptcy discharge date is prior to the actual foreclosure date. When that happens, as long as your foreclosure is tied to your bankruptcy, your waiting period will still fall within the conventional waiting periods listed above.

This is slightly more complicated, but definitely still understandable in layman’s terms. It varies from loan to loan what the waiting period or leniency will be.

For more information on the exact waiting periods for your unique situation, please consult a mortgage consultant. Since each situation is different, it is important to understand exactly where you stand.

Natasha Mason

Demystifying Mortgage Terms

You’re a first time home buyer. Or you’re looking for your second (or third or fourth) home. Either way, there are a lot of terms thrown around in the mortgage industry. And there are probably a few you aren’t familiar with quite yet.

Well, we are here to help with that. Here are a few of the top terms you may hear throughout your mortgage process. If there’s something you still want to know, tell us! We would love to answer any questions you may have.

Let’s start with the basics: types of loans

Adjustable Rate Mortgage- this is a mortgage whose interest rate can adjust throughout the payback period based on market interest rates. Typically, there is a maximum amount the interest rate can be adjusted over the life of the loan, as well as the number of times it can be adjusted throughout one given year.

This type of mortgage features lower interest and lower payments earlier on during the loan term. Lower rates and lower payments can provide the room, financially, for a borrower to purchase a larger home while still being able to afford the monthly payments. Additionally, it allows borrowers to take advantage of falling interest rates without refinancing.

Construction Mortgage- typically a short-term loan, it is given to the borrower to pay for the construction of a new home. If you are considering buying land and building a house, this may be a great option for you to consider to assist on the financial side of building your dream home.

Fixed Rate Mortgage- this is a mortgage whose interest rate stays fixed throughout the payback period of the mortgage. The stability of these loans make budgeting, saving and planning much easier. Fixed Rate Mortgages are also simple to understand, which makes them great for first-time (or any-time) homebuyers.

Jumbo Mortgage- any mortgage that exceeds the limits set by Fannie Mae or Freddie Mac is considered a jumbo mortgage. There is no government backing for these loans, so the requirements to obtain a jumbo loan are significantly higher. The “number” that makes a mortgage “jumbo” varies across the country. For instance, the minimum in Los Angeles, a more expensive housing market than Detroit, is significantly higher. To see if you qualify for a jumbo loan, talk to your loan provider.

Reverse Mortgage- this is where the equity on the house is turned into cash for the homeowner. Home equity is the portion of your property value that you actually own (you can think of it as the part of the property you have already “paid off”). There are a lot of factors to consider when it comes to a reverse mortgage. Fees, your financial stability and how long you plan on staying in your home are a few things to keep in mind when pondering a reverse mortgage.

VA Mortgage- this is a government sponsored mortgage that is guaranteed by the Veteran’s Administration. It is only available to active US service members, veterans and their spouses.

Now for a few more good terms to know

P&I- Principal and Interest. This will be your normal monthly mortgage payment.

PMI- also known as private mortgage insurance. Insurance on a mortgage is generally required of borrowers who make a down payment of less than 20%. Typically, FHA Loans fall into this category and require borrowers to pay a private mortgage insurance. At a certain point during the life of the loan, some borrowers no longer need to pay a PMI.

Foreclosure- the term used to define when a borrower is unable to payback their mortgage and legal proceedings have ensued. This is a period when the lender is, legally, obtaining the title and possession of the home. Typically, houses that have been foreclosed upon are sold and, after sale, the money owed to the mortgage lender is returned to them. For more information and details on foreclosure proceedings, you can talk to your mortgage lender.

Escrow- it is an account set up by the lender to set aside money for the eventual payment of home insurance and property taxes. They are typically required when you (the borrower) are putting down less than a 20% down payment. Requirements regarding escrow accounts are dependent upon your lender.

Don’t let your home buying process be overwhelming or confusing. Talk to one of our loan officers about what options you have available to you! And if there is something you don’t fully understand, just ask. We are here to help.

Natasha Mason