Post Bankruptcy Mortgage Laws

A mortgage is the key to home ownership for most consumers.

When a person faces bankruptcy, he has a number of decisions to make. The biggest decision is how the bankruptcy will effect his credit and his future ability to obtain credit. When trying to secure a mortgage loan after a bankruptcy, there are a number of requirements a consumer must meet to qualify for a traditional Fannie Mae and Freddie Mac backed mortgage, also known as a conventional mortgage.

Length of Time from Bankruptcy

With Fannie Mae and Freddie Mac regulations, a borrower must be released from bankruptcy for a full two years prior to the mortgage application. This two-year time period is counted from the exact date of release to the exact date of the application. Therefore, if the borrower was released from bankruptcy on July 1, 2010, he cannot apply for a mortgage until July 2, 2012.

Late Payments

When a consumer applies for a new mortgage, his credit report will be examined in order to see his credit history. In cases of bankruptcy, the defaulting borrower were likely late on mortgage payments and other bills. According to Freddie Mac and Fannie Mae regulations, a borrower cannot procure a new mortgage for a full year after a 30-day late payment, two years after a 60-day late payment and three years from a 120-day late payment.

Negative Items on credit report

If during the bankruptcy process a borrower had liens placed on his property, such as tax liens, these must be paid in full prior to procuring a new mortgage loan. Collections do not have to be paid, but all judgments or liens must be paid in full. If the judgment or lien is paid in full but still listed on the credit report as open, the borrower has to provide proof of payment before the mortgage application process can move forward.

References

• Bank Rate: Getting a Mortgage After Bankruptcy
• Chicago Federal Reserve: Negative Effects of Bankruptcy on Homeowners