Bank Statement Loans After Foreclosure
Program Context and Risk Assessment
Bank Statement Loans after foreclosure provide an alternative path to home financing for self-employed individuals whose documented taxable income does not accurately reflect their true earning capacity. Bank Statement Loans (BSLs) are Non-Qualified Mortgages (Non-QM) designed for borrowers whose low taxable income—often due to significant business deductions and write-offs—prevents qualification under conventional loan standards. While BSLs offer flexible income verification by analyzing cash flow, they require a strong overall credit profile to mitigate risk.
A prior Foreclosure (or related event like Short Sale or Deed-in-Lieu) is classified as a Significant Derogatory Credit Event or a Housing Event. Consequently, lenders impose strict “seasoning” requirements—the minimum time elapsed since the event was resolved—to ensure the borrower has reestablished financial stability.
Foreclosure and Housing Event Seasoning Requirements
The waiting period begins on the completion or resolution date of the foreclosure, short sale (SS), or deed-in-lieu (DIL) and ends on the new loan’s note date.
A. Advantage/Sharp Expanded Seasoning (Standard Alt Doc)
Under the our Advantage Expanded and Sharp programs, the minimum seasoning period is directly tied to the desired Loan-to-Value (LTV) ratio:
Housing Event Type | LTV Condition | Minimum Seasoning Required |
Foreclosure, SS, DIL, NOD | Max ?80% LTV/CLTV | 2 years |
Foreclosure, SS, DIL, NOD | Max >80% LTV/CLTV | 4 years |
Note: Foreclosure, Short Sale, Deed-in-Lieu (DIL), Default Modification, and Notice of Default (NOD) are all classified as Housing Events in these guidelines.
B. Other Program Seasoning Requirements
Program Type | Seasoning Required | Notes |
Our Edge Standard | 2 years | Seasoning for Housing Events (Foreclosure, SS, DIL, etc.). A shorter seasoning of 1 year is possible with an additional LLPA (Loan Level Price Adjustment) applied. |
Our River/Bayview | 3 years | Requires 3 years seasoning since the completion date of Foreclosure, Short Sale, or Deed-in-Lieu. |
Our Prime Non-QM | None (Single Event) | Housing Events generally do not require a seasoning period if there is a single event, provided the event was settled prior to closing and is not a bailout for the subject property. |
Our Connect Alt Doc | Ineligible (<4 years) | Borrowers who have completed a Foreclosure within the four years preceding the application date are not eligible for financing under Non-QM Connect. |
C. Multiple Derogatory Event
If a borrower has experienced multiple derogatory credit events (e.g., Foreclosure followed by a Deed-in-Lieu), the required waiting period is significantly longer:
- The timeline for eligibility starts with the most recent event.
- Our River/Bayview guidelines require a 7-year seasoning period for multiple derogatory credit events.
- Our Prime guidelines require a 3-year seasoning period from the date of the last Housing Event if there are multiple events.
Post-Foreclosure Underwriting Requirements
Even after the minimum seasoning period is met, BSL underwriting requires specific documentation and adherence to ongoing credit standards:
- Written Explanation (LOE): A signed letter of explanation (LOE) from the borrower is required for any recent credit event that is seasoned less than 4 years. This LOE confirms the nature of the event that led to the foreclosure-related action.
- Credit Reestablishment: All borrowers must have reestablished acceptable credit verified after the credit event.
- Housing History: A satisfactory housing history is required. For the Our Advantage Expanded program, a mortgage rating of 1x30x12 (no more than one 30-day late payment allowed in the last 12 months) is required.
- Foreclosure in Bankruptcy: If a foreclosure was included in a bankruptcy filing, it may be permitted based on the BK discharge date, provided the borrower has vacated the property.
- Cash-Out Refinance: Cash-Out Refinance transactions, considered higher risk, often have stricter limits. Maximum LTV for Cash-Out is always lower than for Purchase/Rate-Term Refinance.
- No Bailouts: The loan proceeds cannot be used for foreclosure bailouts of any kind. The event must be settled prior to close.
- No Tax Returns: Consistent with all Bank Statement Loans, Tax Transcripts are not required. If tax returns or transcripts are provided, the loan may be rendered ineligible for the BSL product.
FAQ's
No. Bank Statement Loans (Alt Doc) are specifically designed so that tax returns and tax transcripts are not required. If tax returns or transcripts are provided, the loan may be rendered ineligible for the BSL product.
Lenders require a satisfactory reestablishment of credit. Some Alt Doc programs require a housing history rating of 1x30x12 (meaning no more than one 30-day late payment allowed in the last 12 months).
Borrowers with multiple derogatory credit events (Housing Events) within the lookback period are often ineligible. If multiple events are present, the timeline starts with the most recent event.
No. Foreclosure Bailouts of any kind are not permitted. The Foreclosure, Short Sale, Deed-in-Lieu, or Loan Modification must be settled at the time of closing.
Yes, a signed letter of explanation (LOE) from the borrower is generally required for any recent credit event that has seasoned less than 4 years. Housing Events in the most recent two years must be explained by the borrower.
If a foreclosure was included in a bankruptcy filing, the loan may be permitted based on the Bankruptcy discharge date. However, the borrower must have vacated the property.
If you are seeking the lowest down payment (i.e., LTV greater than 80%), the seasoning requirement is typically the longest permitted period, generally 4 years, from the date of the event’s resolution.
The seasoning period begins on the date of the event’s resolution, such as the completion date of the Foreclosure or Short Sale, or the discharge date of the Deed-in-Lieu, and ends on the note date of the new loan.
The required waiting period, or seasoning, often depends on the Loan-to-Value (LTV) ratio. Under the Advantage and Expanded programs, it is typically 2 years if the LTV is ≤80%, but 4 years if the LTV is >80%. The Edge Standard program requires 2 years, though 1 year may be permitted with an additional fee.
Events considered “Housing Events” or “Significant Derogatory Credit Events” include Foreclosure, Deed-in-Lieu (DIL), Short Sale (SS), Default Modification, Notice of Default (NOD), and mortgages that were 120 or more days delinquent.
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