Recent derogatory events on your credit report increase your risk of defaulting on a loan in the future. This is especially true if you take out a new mortgage. Because of this, Fannie Mae has a specific waiting period you must go through before you can secure a conventional loan.
The type of derogatory event that you experienced will determine just how long you have to wait to get a Fannie Mae loan. Keep reading to learn the average waiting time for the most common events.
CHAPTER 7 BANKRUPTCY
If you discharged your previous debts in a Chapter 7 bankruptcy, you will need to wait four years before you can secure a Fannie Mae Loan. That four-year period doesn’t begin until the date of the bankruptcy’s discharge, not the date you file for it.
Fannie Mae does allow for a special exception in a few circumstances. They call it ‘extenuating circumstances.’ For example, if you had to file for BK because you were hospitalized or your company closed unexpectedly, you may be able to prove extenuating circumstances. In order for this to work, though, you must have a good credit history prior to the negative event. You must also prove that you were able to fix your credit immediately following the event.
CHAPTER 13 BANKRUPTCY
If you chose to restructure your debts rather than write them off, you are subject to a different waiting period. Typically, you must wait 2 years after the discharge date of the bankruptcy. This means you satisfied the terms of the bankruptcy and have had another 2 years to fix your financial situation.
If you are still in the middle of the repayment plan, you will need the approval of the treasurer overseeing your case in order to take on another debt.
Typically, you must wait 7 years after a foreclosure before you can apply for a Fannie Mae loan. The 7 years start upon completion of the foreclosure process. But, Fannie Mae does allow for special circumstances. Should you be able to prove that you had extenuating circumstances, you can apply for this benefit.
Again, an extenuating circumstance is something that happened that was outside of your control. You must be able to prove that you overcame that circumstance and have since bounced back, though.
PROVING YOUR FINANCIAL WORTH AFTER THE WAITING PERIOD
It’s important to understand that just going through the waiting period isn’t enough. You have to be able to prove you are worthy of the new loan.
This usually requires the reestablishment of new credit. In other words, all of your bills must be paid on time moving forward. You should also have been able to establish new credit. There aren’t any rules regarding the type of credit you must establish, though.
Many borrowers start with a secured credit card since it’s the easiest to obtain. The credit card company will provide you with a credit line that equals the deposit you put on the account. This way if you default on the account, the credit card company has your deposit to use to pay the account in full. Once you establish credit with the secured credit card, you can apply for an unsecured card or installment loan to continue building up your credit.
Keep in mind that each lender can have their own requirements regarding the necessary waiting period after a derogatory event. As long as the lender follows Fannie Mae’s minimum rules, the lender can add their own requirements. In some cases, this may mean a longer period before you can secure the loan. If this is the case, though, you can shop around to find a lender with less stringent requirements.