Changes In Bankruptcy and Mortgage Underwriting

Mortgage By Jim | Enjoy your life. | Jim Catalano | Mortgage

In the aftermath of the housing crisis, the world of mortgage lending has produced its share of sound bites and a plethora of changes in lending guidelines that can confuse even the most observant. My purpose here is to shed some light on those ever changing guidelines and help bring clarity for potential home buyers and real estate agents.

Following are some of my observations:

  1. There should be more home buyers in the market. Many qualified home buyers are not even shopping for a home because they under the presumption they cannot get a mortgage. I will provide insight that will encourage such prospective home buyers.
  2. There are some less stringent lending guidelines. In some cases, lending requirements are less stringent. For example FHA has increased its share of loans to homebuyers with lower credit scores and higher debt ratios. On the other hand, affluent commissioned salespeople, self-employed, newly employed, and retirees who don’t have steady paychecks have difficulty getting a mortgage because they either report inconsistent income to the IRS, cannot provide extended income history from a new employer, or do not have sufficient current income to qualify, but are trying to keep some cash in the bank or delay paying taxes on an IRA distribution.
  3. Improvements are happening with conforming loans. It wasn’t too long ago where a 720 credit score was required for loans with less than a 20 percent down payment. Credit score guidelines are changing. Credit requirements for 95 percent conventional financing are now as low as 620, and mortgage insurance companies have lowered premiums and relaxed guidelines. Some banks have also been peeling back overlays. Another vast improvement in conforming loans has been debt-to-income ratios that can now go as high as 50 percent.
  4. The waiting period to obtain new financing for those affected by mortgage debt discharged through bankruptcy is now only 4 years. Fannie Mae has made extensive changes with regards to the waiting period to obtain a mortgage loan following a bankruptcy or foreclosure. The new guideline is a standard 4 year waiting period following a pre-foreclosure sale (short sale) or deed-in-lieu of foreclosure. In some cases this is only a 2 year waiting period if a borrower has extenuating circumstances. Previous guidelines required a waiting period of 7 years before you could obtain a conventional loan.

If you have any questions regarding financing or market conditions, feel free to submit your question below or call me at (214) 770-1499.

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