It is surprising how many people have zero remorse after a foreclosure. There are those who think nothing of going through the process again to advance their self-interest, with little regard for either their ability to repay or their reputation with a lender. For this reason, lenders do not zealously arrange mortgages for post-foreclosure loan applicants without a thorough screening process.
It doesn’t take long to deduce moral character and integrity. If it is evident the “incident” will never happen again, there are reputable private lenders who are willing to provide a new mortgage – even one day after the foreclosure is finalized (at interest rates that are reasonable under the circumstances).
The Federal National Mortgage Association (FNMA), the ultimate buyer of a conventional loan advanced by a mortgage lender, requires borrowers to wait seven years after title has transferred in a foreclosure proceeding. However, the Federal Housing Administration (FHA) requires that just 3 years elapse before they insure the mortgage advanced by an FHA lender – whereas the Department of Veterans Affairs (VA) needs only 2 years to elapse before guaranteeing the mortgage of a VA lender.
As long as the Certificate of Title is produced evidencing that the 3-year anniversary requirement has been met, a post-foreclosure borrower may obtain an FHA mortgage. And the loan application can be made in advance so that borrowers are ready and able to close on a timely basis, regardless of how the foreclosure is reported on a credit report by the credit bureaus.
To qualify for a conventional mortgage, your income should be “…stable, predictable and likely to continue”. You need to demonstrate your ability to repay – and, ideally, that your income is likely to continue for 3 years. If you earn bonus or commission income, your employer needs to verify that you have received it for the past 12 to 24 months – showing positive factors that offset the shorter income history.
But what if you decide to move to a different location (i.e., to maximize your earnings, to be closer to family, or because it’s just too cold where you are)? Unless your “transfer” is with the same company, you won’t be able to use your bonus income to qualify for a mortgage in your new location.
One of my clients has had consistent earnings with the same major automotive company for 25 years. But because the dealerships are franchisees, each franchisee is deemed to be a separate employer – so his move from one franchisee to another disqualified him from using his bonus income. And because the majority of his income is always from bonuses, he couldn’t qualify for a conventional mortgage. Even though he generated consistent monthly bonuses over the past 7 months at the new franchisee, he needed to show at least 12 months of bonus earnings.
The Federal National Mortgage Association (FNMA) would not bend the rules for this solid income earner. The prevailing private lender agreed that the conventional bonus income guidelines do not incorporate common sense.
Just because you have good credit, low debt-to-income ratios and a good size down payment, don’t think that qualifying for a purchase mortgage on a condominium will be a breeze. It may not be you that the Federal National Mortgage Association (FNMA) is concerned about. Since FNMA is the likely buyer of the mortgage advanced by your lender, they are fastidious about how the condo homeowners association (HOA) or property management company is managing the affairs of the building.
There are some rules you should know before making an offer:
It is not easy for the HOA to monitor the number of rental units – in which case the appraiser will need to make what is often an unreliable estimate. If this estimate is high, it triggers a red flag in the eyes of the lender. Letters of explanation and verbal confirmations will be required, thereby causing substantial delays and increasing the odds that your loan may not close.