Just about everyone who files for bankruptcy worries that they’ll never get a mortgage.
It’s not true – in fact, it’s never been true. That’s not to say you can go from the bankruptcy court right to the mortgage broker, either.
You’ve got to take steps to rebuild your credit standing, save for a down payment, and stabilize your income in order to qualify for a mortgage.
Until recently, Fannie Mae had a waiting period of 4 years between the time a Chapter 7 or 11 bankruptcy case finished and when you could qualify for a mortgage. Chapter 13 cases had a waiting period of 2 years after discharge, or 4 years if the case was thrown out of court.
The Federal Housing Authority loosened their standards a few years back, and now the government controlled mortgage giant will do the same.
Borrowers can now re-apply for a loan just two years after a bankruptcy, short sale, or pre-foreclosure. This is one year longer than the FHA’s minimum waiting period via its FHA Back to Work program, and a major improvement for conforming mortgage borrowers nationwide.
Mortgage guidelines are loosening across all loans and Fannie Mae is now the most recent government group to help borrowers who have a history of poor credit because of bankruptcy, short sale, and pre-foreclosure.
This is good news, of course. According to the company’s earnings report for the fourth quarter of 2014, it is the largest single issuer of single-family mortgage-related securities in the secondary market with an estimated market share of 40 percent. The company also owns or guarantees approximately 19 percent of the outstanding debt on multifamily properties.
The market leader has loosened the purse strings when it comes to people coming out bankruptcy, so more people will qualify overall.
But don’t think this is all part of some good will effort. People coming out of bankruptcy have very little debt if any, which means they’ve got more money to spend on mortgage payments. Home ownership is lower than at any time in nearly 50 years, and allowing more people to qualify for a mortgage will help lift those numbers.
And don’t forget that qualifying for a mortgage is more than simply a bankruptcy issue. Borrowers need to have steady income to meet the costs of the mortgage payment as well as a down payment towards the purchase price. That will continue to be a problem for many, especially given the fact that debts such as student loans remain a post-bankruptcy nightmare for millions of people.
Finally, remember that Fannie Mae needs more people to take out mortgages in order to continue to profit from mortgage-backed securities. Bringing more post-bankruptcy consumers into the fold makes sense not only for the housing market but also for the company’s bottom line.
So if you just got out of bankruptcy, rejoice – your mortgage is closer now than ever before. Just make sure you’re financially ready when you make the jump into home ownership.
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