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Bankruptcies Up; How Long Do They Have to Season for Mortgage Financing?

Bankruptcies Up; How Long Do They Have to Season for Mortgage Financing?

In another indication that we are at the tail end of a business growth cycle, Bankruptcy (BK) filings are increasing even though the economy remains relatively strong.

BK filings were up 3% year over year in July, with 64,000 filings nationwide. And, almost 800,000 people are expected to file for BK protection by year-end, as total credit card debt has hit a new record of $1 trillion.

Mortgage lenders are surprisingly lenient when it comes to BK filings, with common seasoning requirements set out below.

The word “seasoning” refers to the amount of time BK filers need to wait until they can obtain mortgage financing.

FHA financing is the most flexible for borrowers with minimal down payments.

3.5% Down FHA BK Seasoning Requirements:

  • Chapter 7 Liquidation BK: 2 years from date of discharge
  • Chapter 13 Debt Pay-off Plan: NO Seasoning required – with permission of the court and one year of timely BK payments to the trustee

20% Down Non-QM Seasoning Requirements:

  • For borrowers with at least 20% down, Non-QM (“non-qualified mortgage”) lenders require NO seasoning at all.
  • Non-QM borrowers can obtain mortgage financing the day after their BK’s are discharged.

Interest Rates for BK Filers

FHA offers the same very low rates to borrowers with BK’s as it does for every other borrower.

Non-QM interest rates, however, will be at least 2.5% to 4% higher than current Fannie Mae rates, depending on the type of loan.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167