The Guidelines to Meet HUD Standards for Insuring

A home purchase is one of the most important assets most people will acquire. There are many requirements, as such, that lenders have in order to qualify for a home mortgage. Income, assets, IRS and employment verification are all major components to any application these days. Compounding anyone's application is any history of bankruptcy and foreclosure.

There is not much, if any, exception-based financing available due to a financial history which includes a foreclosure or a bankruptcy. As it stands right now, there is a distinction, however, to the guidelines between applying for an FHA loan and a conventional loan backed by Fannie Mae or Freddie Mac requirements.

Fannie Mae requirements as of February, 2011 are as follows:

* Bankruptcy (Chapter 7/11) - A four-year waiting period is required, based on the discharge or dismissal date
* Bankruptcy (Chapter 13) - A four-year waiting period is required, based on the dismissal date, or a two-year waiting period is required, based on the discharge date (whichever is shorter of the two)
* Foreclosure - A seven-year waiting period is required, based on the date of completion

There is a slim possibility of exception, as follows:

* Bankruptcy (Chapter 13) - A two-year waiting period is permitted after the dismissal date, if extenuating circumstances can be documented.
* Foreclosure - A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the completion date of the foreclosure action

There may also be limitations with these exceptions as to the percentage of home value/purchase price willing to be lent to the client. The exception allows financing to be garnered but does not necessarily mean at the same levels if there were no foreclosure or bankruptcy history.

To further add to the mix, there are those who have experienced a short-sale or deed-in-lieu of foreclosure situation in their credit history. There is a distinction between these types of issues and an executed foreclosure. The difference is as follows:

* A two-year waiting period is allowed with a limitation to only 80% financing (maximum, if allowed)
* A four-year waiting period is allowed with a limitation to only 90% financing (maximum, if allowed)

As you can see, there are many limitations and timeline restrictions imposed with a history of foreclosure or bankruptcy. If there are multiple events, however, the likelihood of financing becomes less likely, i.e., both a Chapter 7 Bankruptcy and a foreclosure may be difficult to approve.

There are guidelines that must be followed in order to meet HUD standards for insuring, but the lender also holds the decision to fund.

For FHA loans, the standards are a bit different. One main point to keep in mind is that FHA insures the loan and is not the lender on the mortgage.

FHA requirements, as of February 2011, are as follows:

* Bankruptcy (Chapter 7/11) - A two-year waiting period is required, based on the discharge or dismissal date
* Bankruptcy (Chapter 13) - A one-year waiting period is required, based on the file date, along with a paid-on-time history of payment to the trustee and permission from the court to enter into the mortgage transaction
* Foreclosure - A three-year waiting period is required, based on the date of completion; this is also the case for a deed-in-lieu of foreclosure transactions

Exceptions may be available, but are extremely limited. Most of the exceptions would be based on extenuating circumstances such as death or serious illness of the primary wage earner.

One final point must be made. These guidelines do not necessarily mean that a lender will choose to provide financing even if the requirements from Fannie Mae/Freddie Mac or FHA are met. A lender still will underwrite the loan application and make a determination based upon all of the provided information. A lender has a responsibility to be fiscally-minded, both for the company and for the client. It should not come as a surprise that certain lenders may have requirements that are stricter than what Fannie Mae/Freddie Mac or FHA requires.

The best practice to start any possible financing for a residential purchase is to speak to a knowledgeable loan officer who can guide you and provide answers to whichever options might be available.




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