News You Can Use

“How soon after a bankruptcy can I purchase a home?”  This is a common question I hear from prospective home buyers.  They may have had a bankruptcy and whether it’s recent or old, questions surrounding the necessary waiting period come up.  Assuming the borrower has reestablished credit after the bankruptcy general time frames (since there are exceptions to everything) for purchasing a home after bankruptcy are as follows:

Conventional loans will allow for a borrower to purchase a primary residence 2 to 4 years after their bankruptcy is discharged.  The waiting period depends on whether the bankruptcy was the result of extenuating circumstances or financial mismanagement. Per Fannie Mae, extenuating circumstances are “nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.” Borrowers would also have to provide documentation to support the extenuating circumstances such as a divorce decree, medical reports/bills, notice of job layoff, etc.

If there have been multiple bankruptcies during the last seven years, a borrower would have to wait 5 years from the most recent discharge or dismissal date.

With FHA financing a borrower may purchase a new home 2 years from the date of discharge of a Chapter 7 bankruptcy.   If they have filed for a Chapter 13, their loan may be considered during the payout period as long as 12 months have elapsed with good payout history & recommendation of Bankruptcy Trustee.

Borrowers using USDA financing may purchase a new home 3 years from the date of discharge of a Chapter 7 bankruptcy.   If they have filed for a Chapter 13, they may be approved during payout as long as 12 months have elapsed with good payout history & recommendation of Bankruptcy Trustee.

Veterans may use a VA loan to purchase a home 2 years after a bankruptcy has been discharged.

Keep in mind that these are general time frames and the clock doesn’t start on the ‘recovery period’ until the bankruptcy has been discharged.  By understanding common underwriting guidelines, a bankruptcy doesn’t have to be an obstacle when purchasing a home.

Cooking Corner

Looking for an easy but healthy and slightly addictive new snack?  This Roasted Edamame will be what you’re looking for! 

News You Can Use

The Obama Administration has sent its FY 2013 budget to Congress.  It includes two mortgage insurance increases and raises the prospects for additional premium increases if that becomes necessary (i.e. because of additional increases in seriously delinquent loans).  

The increase that affects buyers in the Charlotte area is that the annual premium goes to 1.25% (a 10 basis point increase).  The annual premium is what borrowers pay monthly in MI on FHA loans.   So for a $135,000 purchase price with a 3.5% down payment, the monthly MI is currently $123.80.  Under this change the MI would increase by about $11/mo. 

When will these increases be implemented?
The Budget indicates these changes will be implemented “soon”.  Based off previous increase announcements we expect the mortgagee letter with implementation details to be published within a few days with an effective date in mid-April. 

What are the prospects for further increases?
FHA has left the door open for future increases to compensate for defaulted loans.  While FHA defaults are on the rise (from 584,822 loans in June 2011 to over 711,000 loans in December 2011) only about 6.5% of FHA’s seriously delinquent loans were originated in the last two years.   The New York Federal Reserve Bank William Dudley recently addressed this when he said “But the guarantee fees (referring to the GSEs) for new purchase mortgages should be based on the expected losses on these mortgages – not the realized losses on loans of earlier vintages.”    So while the opportunity for future increases remains, we’re hopeful FHA doesn’t penalize future buyers for previous buyers’ defaults.

Please make any clients aware of this upcoming change if they intend to use FHA to buy in the next few months.  The mortgage insurance rate is determined by when their case number is ordered for their loan so it behooves clients to make loan application before the upcoming MI change date.

Cooking Corner

Looking for another crowd pleasing appetizer for this weekend’s big game?  How about one that leaves you feeling a little less guilty?  

Check out this recipe for Crunchy Oven-Fried Cheese Ravioli.

News You Can Use

“How soon after a foreclosure can I purchase a home?”  This is a question I’m being asked more frequently.   The answer is: it depends.  As a general rule and assuming a positive credit history since the foreclosure:

Conventional loans will allow for a borrower to purchase a primary residence 3 to 7 years depending on whether the foreclosure was a result of extenuating circumstances or financial mismanagement.  Per Fannie Mae extenuating circumstances are “nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.” Borrowers would also have to provide documentation to support the extenuating circumstances such as a divorce decree, medical reports/bills, notice of job layoff, etc.

With FHA and USDA financing a borrower may purchase a new home 3 years from the date of the foreclosure sale. 

VA financing is the most lenient because they will allow for a new home purchase after two years have passed since a foreclosure.

Keep in mind that these are general time frames and the clock doesn’t start on the ‘recovery period’ until the foreclosure is finalized, not when the borrower moved out, was served foreclosure papers, etc.    A previous foreclosure doesn’t make future home ownership impossible, you just need to understand the options.