Stop and listen up if you had a previous bankruptcy on or before December 2, 2009 you can get a mortgage loan. You had a previous foreclosure or short sale on or before December 2, 2008 you can get a mortgage loan.
Let 2012 be the year to get back on your feet and secure a conservative fixed rate bad credit mortgage for a purchase or refinance home loan. Think it can’t be done? Think again, government loans provide flexibility and makes sense loan qualifying.
A government loan is not a bad credit mortgage it’s the next best alternative to make sense underwriting.
The government loans we are referencing are FHA loans and USDA Rural Loans. Both of these programs mirror each other in loan qualifying. The main difference is USDA loans which provide financing for specific areas only.
The guidelines for FHA and USDA loans are the following:
Foreclosure
Previous foreclosure whether on a previous primary residence or previous second home or investment property is an automatic three years from the date “filed” on the borrower’s personal credit report. The credit report date carries the most weight with mortgage loan lenders.
Short Sale
Previous short sale has the exact same guidelines as foreclosure. In the eyes of a mortgage lender, a short sale has just as much negative impact on loan qualifying as a foreclosure does. So it’s an automatic three year window from the date filed on your credit report. This means if you had a foreclosure or short sale in 2009 you could be eligible to qualify for a new mortgage loan in 2011, with a ridiculously low interest rate. By the way, USDA loans offer require no down payment.
Bankruptcy
Chapter 7 bankruptcy which is the full debt liquidation form of bankruptcy which provides a two-year window to qualify for a loan. The date of “discharge” on the credit report earmarks 24 months from that time that you would be eligible to qualify for a government loan. On a case-by-case basis, it can be done in 19 months from the date of discharge on the credit report with extenuating circumstances.
These extenuating circumstances include:
- Job loss
- Health related
- Medical related
* Divorce unless it can be proven, is usually not considered an extenuating circumstance.
Chapter 13 bankruptcy is a form of bankruptcy that allows you to keep the debts while restructuring them. This form of bankruptcy allows you to be eligible for a government loan within one year from the reported discharge date on your credit report.
“Most people do do the chapter 7 bankruptcy the full liquidation so the window becomes two years”.
Fortunately, the bad credit mortgages of 2004 to 2007 are nonexistent and have been replaced by fixed rate government-backed loans.
The fixed rate FHA loan and fixed rate USDA loan are the new form of a bad credit mortgage. The federal government wants to promote borrowing by providing relaxed lending guidelines on these programs.
*Don’t be fooled.
The federal government while promoting borrowing, also has the profit factor and that comes in the form of mortgage insurance.
FHA loans have an upfront mortgage insurance premium as well as a monthly mortgage insurance premium and the monthly mortgage insurance premium cannot be removed until after 60 months has passed and the borrower has amassed 20% equity in their residence.
USDA loans do not have mortgage insurance, but they do have a monthly guarantee fee which is quite low and they also have an upfront finance fee, financed over the life of the loan.
So if you’ve had previous foreclosure or short sale in 2009, 2012 is the year you can look at repurchasing a home and getting back on your feet. If you’ve had a previous bankruptcy whether that be a Chapter 7 or Chapter 13 in 2010, 2012 is the year that you can reemerge successfully by procuring a fixed rate government loan.
FHA loans and USDA loans are government-backed loans which provide flexible loan qualifying ability for borrowers seeking to purchase a primary residence only. Let me say that again this is for a primary residence only. Second homes and investment properties are ineligible for these financing types.
Following are the property types most commonly bought with government financing:
- Single-family residences
- Planned unit developments (PUD)
- Condominiums on a case-by-case basis
Find the 2012 bad credit mortgage, which is really a long-term fixed rate government loan.
Do your homework. Provide your full bankruptcy discharge papers (typically a 60 page document) to your mortgage lender. They will need this in order to approve your new purchase or refinance loan. Write yourself a detailed letter explanation of the events and circumstances that led to the derogatory credit.
Include the following:
- What happened
- Why it happened
- How you are back on your feet
- Why it will not happen again
This letter will be immensely helpful for the underwriter in piecing together your loan file.
Provide what ever documentation you have regarding the previous short sale or foreclosure. Same rule applies, write a letter of explanation of events and circumstances that led to the foreclosure. Mortgage loan underwriters will paper trail everything, everything.
Find find a bad credit mortgage with the right government loan today.
