Conventional Loan After Deed In Lieu And Short Sale Guidelines

This Article On Conventional Loan After Deed In Lieu And Short Sale Guidelines

Fannie Mae guidelines waiting period to qualify for a conventional loan after a deed in lieu of foreclosure or short sale is 4 years from the recorded date of the deed in lieu of foreclosure and/or the short sale date. The waiting period start date is reflected on the HUD’s settlement statement if the home buyer has a short sale or recorded date of DIL. However, many lenders have their own rules and guidelines when it comes to approving a conventional loan after a deed in lieu or short sale. Mortgage Overlays are the additional stricter rules and guidelines set by the individual lender is above and beyond Fannie Mae and Freddie Mac Guidelines. All lenders need to meet Fannie Mae and/or Freddie Mac Guidelines. However, every lender can have higher mortgage lending requirements on top of Fannie/Freddie which are called mortgage overlays.

Overlays On Conforming Loans

Just because Fannie Mae’s guidelines for a conventional loan after a deed in lieu or short sale is 4 years, that does not mean that conventional borrowers are home free. Many lenders will have their own mortgage overlays. I get countless inquiries from homebuyers who have been turned down by other lenders due to their overlays. Gustan Cho Associates has no overlays on government and conventional loans. Most lenders do have their own conventional loan overlays.

Common Overlays By Mortgage Lenders

Here are typical mortgage overlays by lenders:

• Higher than minimum credit score requirements
• Loan To Value
• Outstanding collections and/charged-off accounts to be paid when AUS does not condition it
• The minimum amount of credit tradelines
• Longer waiting period requirements than the minimum requirements
• Reserves

Verification Of Rent is required when AUS does not condition for it.

Automated Underwriting System And Getting Approve/Eligible Findings

In order to qualify for a conventional loan after a deed in lieu or short sale with a 5% down payment, borrowers need to get an approve/eligible per Fannie Mae’s DU FINDINGS.

• Without an approve/eligible, the deal cannot proceed

The Automated Underwriting System is a sophisticated electronic underwriting system that analyzes the following:

• mortgage applicant’s income
• credit
• credit scores
• credit history
• debts
• payment history
• assets
• public records

Other factors in the mortgage application as well as the credit report and render a decision within minutes.

Key To Getting An Approve/Eligible Per Automated Underwriting System

To get an approve/eligible per DU FINDINGS for a conventional loan after deed in lieu or short sale, the mortgage applicant needs the following:

• have timely payment history in the past 12 months
• credit scores north of 620
• proof of funds for a down payment and closing costs
• no late payments after the deed in lieu and/or short sale
• preferably have rental verification

Turned Down For Conventional Loan After Deed In Lieu Or Short Sale?

There are many borrowers who do meet the Fannie Mae Guidelines after a deed in lieu of foreclosure and/or short sale and have a 5% down payment on their home purchase but get turned down for a conventional mortgage loan due to overlays by lenders. Borrowers need to consult with lenders with no overlays who will just go off the DU FINDINGS. Borrowers who had a deed in lieu of foreclosure and/or short sale and have passed the four-year waiting period and have the 5% down payments with no late payments since DIL/Short Sale can normally qualify for Conforming Loans.

Conventional Loan After Deed In Lieu Of Foreclosure Or Short Sale Versus Foreclosure

Conventional Loans have different waiting period guidelines after a deed in lieu of foreclosure versus standard foreclosure.

• Waiting Period to qualify for Conventional Loan After Deed In Lieu Or Short Sale is shorter than borrowers who have a standard foreclosure
• Government Loans have the same waiting period after foreclosure, deed in lieu of foreclosure and short sale

However, conventional loans classify short sale and deed in lieu of foreclosure waiting period differently than standard foreclosure.

Conventional Loans Versus Other Loan Programs

Here are the waiting period requirements to qualify for Conventional Loan After Deed In Lieu Or Short Sale Versus Foreclosure:

• 4 Year Waiting Period After Deed In Lieu Of Foreclosure 
• 4 Year Waiting Period After Short Sale
• 7 Year After Recorded Date Of Deed In Lieu Of Foreclosure
• 4 Year Waiting Period To Qualify For Conventional Loans After Chapter 7 Bankruptcy discharged date
• 2 Year Waiting Period To Qualify For Conventional Loans After Chapter 13 Bankruptcy discharged date

Conventional Loans Versus FHA Loans

Conventional loan programs are for borrowers with better credit and financial profiles.

• Conventional loan programs are credit-sensitive unlike FHA mortgage loan programs
• The higher credit scores, the better the conventional mortgage rate
• Conventional loan programs have stricter guidelines than FHA mortgage loans
• For example, borrowers can qualify for an FHA loan with a 500 FICO
• However, the lowest credit score to qualify for a conventional loan is 620 FICO
• A 620 FICO credit score is considered a very low score for conventional borrowers
• The conventional borrower will probably get a pretty high mortgage rate

Homebuyers can now qualify for a conventional loan after a deed in lieu of foreclosure and/or short sale after a 4-year waiting period. The waiting period start clock is from the recorded date of the deed in lieu of foreclosure and/or short sale.

Other Disadvantages Of Conventional Loan After Deed In Lieu Of Foreclosure

FHA mortgage loan programs will allow the back end debt to income ratios as high as 56.9%.

• With conventional loan programs, having a 50% debt to income ratio will probably be pushing it to get an approve/eligible per Automated Underwriting System
• The Automated Underwriting System will compute and analyze the borrowers’ overall credit history, asset, debt, and income and determine what the maximum debt to income ratio will be capped at

Conventional loan programs are geared for borrowers who have stronger credit profiles and assets.

Waiting Period To Qualify For Conventional Loan After Deed In Lieu Of Foreclosure Or Short Sale Versus Bankruptcy

With FHA mortgage loan programs, there is a 2-year waiting period after Chapter 7 Bankruptcy discharged date to qualify for an FHA mortgage loan.

• The waiting period is 3 years for those borrowers who have had a prior foreclosure, deed in lieu of foreclosure, or short sale

They also need to have re-established credit and no late payments after the bankruptcy or foreclosure, have rental verification for lower credit score borrowers.

Waiting Period To Qualify For Conventional Loan After DIL, Foreclosure, Bankruptcy, And Short Sale

Waiting period requirements for conventional loan programs are much stricter than FHA mortgage loan programs.

• There is a 7-year waiting period to qualify for a conventional loan after a foreclosure or bankruptcy
• Borrowers can qualify for a conventional loan after four years after a deed in lieu of foreclosure or short sale
• These are Fannie Mae guidelines and are the bare minimum requirements
• Many conventional lenders have overlays

Besides having the 5% down payment, conventional lenders will want to see re-established credit as well as zero late payments after the deed in lieu of foreclosure as well as the short sale.

Update On Waiting Period For Conventional Loan After A Deed In Lieu And/Or Short Sale

Effective August 2015, the waiting period after a deed in lieu of foreclosure and short sale to qualify for a conventional loan has been extended to a 4 year waiting period with a 5% down payment and re-established credit with a minimum of 620 FICO credit score.

• The two-year waiting period after a deed in lieu of foreclosure and short sale to qualify for a conventional loan with 20% down payment is no longer in effect

Update On Mortgage Part Of Bankruptcy

Borrowers who had mortgage part of Chapter 7 Bankruptcy can qualify for Conventional Loans four years after the discharged date of the Chapter 7 Bankruptcy. The foreclosure, deed in lieu of foreclosure, a short sale has to be completed but the waiting period start date starts from the Chapter 7 Bankruptcy discharged date. The housing event date after the Chapter 7 Bankruptcy discharge does not matter.

Update On Conventional Loan After Deed In Lieu And Short Sale

Here are the updated Conforming Guidelines:

• The Loan Limit as of 2018 is $453,100 unless the property is located in high-cost area
• The 2 year waiting period after deed in lieu of foreclosure and short sale with 20% down payment is no longer in effect as of 2018
• New Fannie Mae Lending Guidelines on qualifying for a conventional loan after deed in lieu of foreclosure and short sale is four years from the recorded date of the deed in lieu of foreclosure or the date of the short sale which is reflected on the HUD Settlement Statement
• There is a four-year waiting period to qualify for conventional loans after Chapter 7 Bankruptcy
• There is a two-year waiting period to qualify for Conforming Loans after Chapter 7 Bankruptcy
• Four year waiting period after Chapter 13 dismissal date
• Seven-year waiting period after the recorded date of foreclosure to qualify for conventional loans

Borrowers with mortgage part of Chapter 7 Bankruptcy can qualify for Conventional Loans four years after the Chapter 7 Bankruptcy discharged date. The housing event can be recorded at a later date after the Chapter 7 Bankruptcy discharged date and has no bearing on the waiting period.

Home Buyers who need to qualify for conventional or government loans with direct lender with no overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.