New Mortgage Regulations – What You Need to Know

Past Bankruptcy and Foreclosure

If you’ve owned a home before, but it didn’t end well, you need to understand what your options are for getting a new mortgage.

• If it’s a Chapter 13 bankruptcy that mars your credit, you will need 2 years from the date of the bankruptcy discharge. If it was a Chapter 13 dismissal instead of a discharge, or any other type of bankruptcy, you’ll need to wait 4 years before your credit can be re-established.
• Foreclosures require even more time: 5 years have to elapse before you’ll be considered for a new loan.
• If you haven’t experienced either, but you have been delinquent on a mortgage for more than 60 days in the past 6 months, you’ll be considered a risk and will have trouble getting approved for a new loan.

Risk Factors and Other Approval Guidelines

The new mortgage approval guidelines don’t stop there. Any mortgage that’s considered a high risk is going to have trouble getting approved. That includes interest-only ARMS (adjustable rate mortgages), and maybe somewhat surprisingly, a mortgage for a condo. Yes, you read that right. If you want a loan for a condo as opposed to a single family detached home, you will be considered a higher risk.

Also, when the loan to value ratio on a mortgage is greater than 85%, private mortgage insurance (PMI) is not going to lower your risk factor anymore. However, on a slightly different note, if you’re self-employed, you’ll actually be considered less of a risk than you would have been in the past. Another new guideline to be aware of is that an authorized user on your credit card who has a better credit score than yours will no longer factor into your credit rating.

Expanded Approval Loans May Be An Option

Maybe you no longer qualify for a conventional mortgage, but if you come very close, then you may be able to qualify for an Expanded Approval loan from Fannie Mae. Don’t get this type of loan confused with a subprime loan; there are still strict guidelines for approval. You will pay higher interest rates than a conventional loan, and if you have to pay PMI, those rates can be high as well.

Even though getting approved for a mortgage is harder than it used to be just a few months ago, don’t set aside your dream of owning a home. Make an effort to understand the new guidelines and take the time to improve the areas of your application that you can. It may take a little longer than you originally hoped, but it can still lead you to mortgage approval for your new home.