January 13, 2017

Mortgage waiting periods can affect when a borrower may qualify for a new home loan after a major credit event such as foreclosure, bankruptcy, short sale, deed-in-lieu of foreclosure, or loan modification.

These waiting periods are sometimes referred to as mortgage seasoning requirements. They vary by loan type, investor guideline, lender overlay, automated underwriting result, and the specific facts of the borrower’s credit history.

This article provides a general overview of how mortgage waiting periods are commonly evaluated. Guidelines can change, and individual lenders may apply additional requirements, so borrowers should confirm current eligibility with a qualified mortgage professional before relying on any waiting-period estimate.

Multiple Loan Programs to Consider

Several major agencies, investors, and guarantors influence mortgage eligibility guidelines. The most common include:

• Federal Housing Administration, commonly known as FHA
• U.S. Department of Veterans Affairs, commonly known as VA
• Fannie Mae
• Freddie Mac
• Portfolio lenders
• Private money lenders

Each program may treat prior derogatory credit events differently. A borrower who is not eligible for one type of loan may still have options through another program, a portfolio lender, or a private money lender, depending on the property, equity, income, credit profile, and exit strategy. For definitions of common terms such as LTV, lien position, deed of trust, exit strategy, and private money loan, borrowers can also review our Private Lending & Mortgage Glossary.

Why Mortgage Waiting Periods Matter

Waiting periods matter because many institutional mortgage programs require time to pass after a significant derogatory credit event before the borrower is eligible for a new loan.

Examples of events that may trigger a waiting period include:

• Foreclosure
• Chapter 7 bankruptcy
• Chapter 13 bankruptcy
• Short sale or preforeclosure sale
• Deed-in-lieu of foreclosure
• Mortgage charge-off
• Loan modification
• Serious mortgage delinquency

The required waiting period may depend on the event date, discharge date, dismissal date, completion date, reporting on the credit report, and whether any extenuating circumstances apply.

FHA Mortgage Waiting Periods

FHA loans may be available to some borrowers after a prior bankruptcy, foreclosure, or short sale once the applicable waiting period and credit re-establishment requirements are met.

Common FHA waiting-period concepts include:

• A foreclosure may require a waiting period before a new FHA loan is available.
• A Chapter 7 bankruptcy generally requires time from discharge before FHA eligibility can be considered.
• A Chapter 13 bankruptcy may be evaluated differently if the borrower has made required plan payments and obtains any required court or trustee approval.
• A short sale or preforeclosure sale may be treated differently depending on the borrower’s payment history and the facts surrounding the transaction.

FHA guidelines should always be verified against the current FHA Single Family Housing Policy Handbook and the lender’s overlays at the time of application.

VA Mortgage Waiting Periods

VA loans may offer eligible veterans, service members, and qualifying surviving spouses a path back to mortgage financing after certain derogatory credit events.

VA eligibility after foreclosure, bankruptcy, short sale, or loan modification depends on several factors, including the type of event, credit re-establishment, entitlement status, lender underwriting, and whether the borrower meets VA and lender requirements.

Borrowers should also understand that VA loan eligibility and VA loan approval are not the same thing. A borrower may have VA eligibility but still need to satisfy lender underwriting requirements.

Fannie Mae and Freddie Mac Conventional Waiting Periods

Conventional mortgage loans that are sold to Fannie Mae or Freddie Mac generally have more specific waiting-period requirements after significant derogatory credit events.

For conventional financing, the relevant event may include:

• Chapter 7 or Chapter 11 bankruptcy
• Chapter 13 bankruptcy discharge or dismissal
• Foreclosure
• Deed-in-lieu of foreclosure
• Short sale or preforeclosure sale
• Mortgage charge-off

For example, conventional guidelines may require a longer waiting period after a foreclosure than after a short sale or deed-in-lieu. Chapter 13 bankruptcy may also be treated differently depending on whether the bankruptcy was discharged or dismissed.

Extenuating circumstances may shorten certain waiting periods if the borrower can properly document the event and satisfy all related requirements. However, not every hardship qualifies, and not every lender will apply the same interpretation.

Foreclosure Waiting Periods

After a foreclosure, many borrowers must wait before qualifying for certain institutional mortgage programs.

The waiting period may be measured from the foreclosure completion date, trustee’s sale date, sheriff’s sale date, recorded trustee’s deed, or another date recognized under the applicable program guidelines.

Borrowers should verify the exact date being used because credit reports are not always complete or accurate. In some cases, a lender may need foreclosure documents, bankruptcy documents, trustee’s deeds, court records, or payoff documentation to determine the correct waiting-period date.

Bankruptcy Waiting Periods

Bankruptcy waiting periods depend heavily on the type of bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is usually evaluated from the bankruptcy discharge or dismissal date, depending on the loan program.

After Chapter 7 bankruptcy, borrowers should focus on rebuilding credit, maintaining clean payment history, avoiding new derogatory accounts, and documenting income, assets, and housing stability.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy can be more nuanced because the borrower may be making payments through a court-approved repayment plan.

Some programs may consider a borrower before the Chapter 13 bankruptcy is fully discharged if the borrower has made a sufficient history of on-time plan payments and obtains required court or trustee approval. Other programs may require time after discharge or dismissal.

Borrowers in or recently out of Chapter 13 bankruptcy should speak with a mortgage professional who understands Chapter 13 documentation requirements.

Short Sale and Deed-in-Lieu Waiting Periods

A short sale, also known in some guidelines as a preforeclosure sale, occurs when a property is sold for less than the total amount owed with lender approval.

A deed-in-lieu of foreclosure generally occurs when the borrower transfers the property back to the lender or servicer instead of completing a foreclosure process.

These events may have shorter waiting periods than a completed foreclosure under some programs, but the details matter. The lender may need to confirm how the event is reported, whether the prior mortgage was settled for less than the full balance, whether there were late payments, and whether any extenuating circumstances apply.

Loan Modification Waiting Periods

Loan modification guidelines can vary significantly by program and lender.

Some lenders may review the timing of the modification, payment history after the modification, whether the loan was brought current, whether principal was deferred or forgiven, and whether there was a related notice of default, foreclosure filing, or mortgage delinquency.

Because loan modifications can be reported differently, borrowers should be prepared to provide the modification agreement, payment history, and any related default or foreclosure documents.

Portfolio Lenders

Portfolio lenders hold loans on their own balance sheet instead of selling them under standard agency guidelines. Because of that, they may have more flexibility in certain situations.

A portfolio lender may approve a borrower who does not fit FHA, VA, Fannie Mae, or Freddie Mac guidelines if the overall file makes sense. However, the loan may have different pricing, lower leverage, more documentation requirements, or stricter compensating factors.

Portfolio lending can be useful when a borrower has a strong explanation, meaningful equity, substantial liquidity, or a property that supports the loan despite prior credit issues.

Private Money Loans

Private money loans generally do not follow the same waiting-period framework as FHA, VA, Fannie Mae, or Freddie Mac loans.

For a business-purpose private money loan, the lender may focus more heavily on the property, equity, loan-to-value ratio, borrower plan, exit strategy, and the reason for the financing request.

That does not mean credit history is irrelevant. A prior foreclosure, bankruptcy, short sale, or loan modification can still matter because it may affect borrower credibility, payment history, refinance options, and exit risk.

However, private money lenders may be able to evaluate a transaction that would not currently qualify for institutional financing.

In many cases, private money is a bridge solution. The borrower may use a private loan to acquire, stabilize, improve, or hold a property while working toward a sale, refinance, or other exit. General private lending parameters can be reviewed on our Hard Money Loan Programs page.

How Borrowers Should Prepare

If you have had a foreclosure, bankruptcy, short sale, deed-in-lieu, loan modification, or serious mortgage delinquency, prepare documentation before applying for a new loan.

Useful documents may include:

• Bankruptcy discharge or dismissal papers
• Bankruptcy schedules, if applicable
• Chapter 13 payment history
• Court or trustee approval, if applicable
• Foreclosure trustee’s deed or sheriff’s deed
• Short sale approval letter
• HUD-1, closing disclosure, or settlement statement
• Loan modification agreement
• Mortgage payment history after modification
• Credit reports
• Letters of explanation
• Documentation supporting any claimed extenuating circumstances

The cleaner the documentation, the easier it is for a lender to determine whether the waiting period has been met.

Final Thought

Mortgage waiting periods are important, but they are only one part of loan eligibility.

A borrower may also need acceptable credit, income, assets, debt-to-income ratio, property type, occupancy, loan-to-value ratio, title, and other underwriting requirements.

If you do not yet qualify for FHA, VA, Fannie Mae, Freddie Mac, or portfolio financing, a private money loan may be worth evaluating in certain business-purpose real estate scenarios.

At FK Capital Fund Inc., we provide business-purpose private lending solutions throughout California, including bridge loans, hard money construction loans, rehab loans, and select real estate-secured financing scenarios. Examples of prior lending activity can also be reviewed on our Featured Transactions page.

If you have a California business-purpose real estate financing scenario, FK Capital Fund can review the request based on the property, borrower, structure, equity, and exit strategy.

Submit your loan scenario for review.

For general questions, you can also contact FK Capital Fund here.

Frequently Asked Questions

What are mortgage waiting periods?

Mortgage waiting periods are the amount of time that may need to pass after a major credit event, such as foreclosure, bankruptcy, short sale, deed-in-lieu, or mortgage charge-off, before a borrower may be eligible for certain loan programs.

How long after foreclosure can I get a mortgage?

The waiting period after foreclosure depends on the loan program, the foreclosure completion date, the borrower’s credit recovery, and the lender’s guidelines. Conventional loans may have longer waiting periods than some government-insured or guaranteed loan programs.

Can I get a mortgage after bankruptcy?

Yes, many borrowers can qualify for a mortgage after bankruptcy once the required waiting period has passed and credit has been re-established. The rules differ for Chapter 7 and Chapter 13 bankruptcy.

Is a short sale treated the same as a foreclosure?

Not always. Some loan programs treat short sales, preforeclosure sales, and deeds-in-lieu differently from completed foreclosures. The reporting, documentation, and completion date can affect eligibility.

Do private money loans have the same waiting periods?

Private money loans generally do not follow the same waiting-period rules as FHA, VA, Fannie Mae, or Freddie Mac loans. A private lender may evaluate the property, equity, loan-to-value ratio, borrower plan, and exit strategy instead of applying a fixed agency waiting-period matrix.