Waiting Periods For a Derogatory Credit Eventderogatory credit event “Derogatory credit event,” is a Fannie Mae term. This can narrow your chances of qualifying for a home loan. With the right information and some patience, you will eventually land a loan to purchase your desired house. How problematic are past events? First, let’s understand what Fannie Mae means with “Derogatory credit events". They are past situations where a borrower had hardships in repaying their loan. Therefore calling for an adverse action. An adverse action lower the chances of a borrower getting another loan. Do not fret if you have a history of bankruptcy, charge-offs, foreclosure or short sales. Lenders can find a program that will fit your scenario. Going through the conforming channels are not likely until your waiting period has passed; depending on which derogatory credit event. In recent years, lenders can close a loan as little as 1 day out of bankruptcy or foreclosure. Just be prepared to pay more in the interest rate. This is the trade-off. However, such situations are not a complete barrier to one getting a loan in the future. In most cases, one can still get a loan. But it will need more waiting time before you qualify for a loan backed by Fannie Mae or Freddie Mac. The lender analyzes the cause of the matter and its significance. They look back to see the date the event "finalized". If it's a bankruptcy, the waiting period starts as of the BK discharge date. In the conforming loan environment, the waiting can go from two to seven years. It varies with the nature of the derogatory credit event. Contact Casey Moseman with Las Vegas Custom Loans to find out what non-conforming products are available for your specific scenario.
Specific Timeline Rules for Different “Derogatory Credit Events”
Foreclosure and Bankruptcy
Alternatives to ForeclosureEven after experiencing a derogatory credit event, you can still buy a beautiful home. A pre-foreclosure sale, deed-in-lieu, or the charge-off of the account is enforceable in place of foreclosure. Deed-in-lieu of foreclosure is where the deed of the property transfers to the lender. The lender, in simple terms, gives the deed back to the lender so to avoid the process of foreclosure. Your credit report may document this. A short sale or pre-foreclosure sale is when a property that is in default is sold. In some cases, the accepts a smaller amount than what the borrower owes. The lender can also charge-off the amount owed by writing the loan as a bad debt. This doesn’t automatically make you clear of the financial obligations so you need the help of an attorney. The lender documents the charge-off on your credit report when your account achieves delinquency status. Also, in cases of short sales, the lender mails a 1099-C. This is a tax form that means debt was canceled & it is then viewed as income via the 1099-C. During the period of major economic downturn, the IRS was treating this income as tax-free. That temporary allowance has expired. Therefore if a homeowner sells their home for less than owed, they will need to pay taxes on the amount of debt that was canceled. How to Reestablish Good Credit The good news is a bad credit score isn’t a sentence for life. As lenders love to see recent good payment behavior, pay your bills on time and keep your balances low.
There are lots of programs and creative options out there to suit all different needs. Want to learn more about improving your credit score and achieving your financial goals? Call Casey Moseman 702-271-1274 www.lasvegascustomloans.com