Borrowers who have previously filed for bankruptcy can qualify for a residential loan, but only under certain conditions.
At Fannie Mae, borrowers who have had a Chapter 7 or Chapter 11 bankruptcy must wait at least four years from the discharge or dismissal date.
However, the waiting period could be reduced to just two years in situations where extenuating circumstances were involved and can be documented.
Fannie, which discussed the requirements in an outline of top trending questions that it has received from sellers and servicers, has previously described extenuating circumstances as “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.”
For borrowers who have previously filed a Chapter 13 bankruptcy, the waiting period is either two years from the discharge date or four years from the dismissal.
“The shorter waiting period based on the discharge date recognizes that borrowers have already met a portion of the waiting period within the time needed for the successful completion of a Chapter 13 plan and subsequent discharge,” the notice said.
But Fannie said that documented extenuating circumstances could reduce the waiting period to two years after a Chapter 13 dismissal.
In situations where a borrower has had more than one bankruptcy during the past seven years, the waiting period is five years from the most recent dismissal or discharge date.
However, the multiple bankruptcy requirement doesn’t apply when multiple borrowers on one transaction have each filed a separate bankruptcy.
Fannie said that the waiting period can be reduced to three years if the most recent bankruptcy was due to extenuating circumstances.
