DSCR Loans After Foreclosure

For DSCR transactions specifically, non-title charge-offs and collections can often be ignored unless they impact the title. However, any tax liens or judgments that affect the title must typically be paid off prior to or at closing. For the DSCR No Ratio Program, non-title charge-offs and collections exceeding $5,000 within three years must be paid, though medical collections less than $15,000 are often excluded.

Yes, some DSCR programs impose restrictions on multiple events. For instance, the Investor Edge Elite DSCR generally does not permit multiple credit events within a four-year lookback period. Furthermore, multiple derogatory credit events in some programs, like River DSCR, may require a lengthier 7-year seasoning period.

The pricing (interest rates) for Non-QM mortgages, including DSCR loans, depends on several factors, including the seasoning period from the housing event. Since Non-QM loans are considered higher risk, they generally carry higher interest rates than traditional loans. However, timely payment history in the past 12 months is important for qualifying, even with prior bad credit.

Yes, Housing Events and bankruptcies that have occurred in the most recent two years typically require a signed letter of explanation from the borrower. For certain Non-QM programs (Sharp DSCR, for instance), if a derogatory event is older, a full explanation may be required if the event occurred more than 60 days delinquent within four years of closing.

No, one of the key features of a DSCR loan is that qualification is determined solely based on the debt service coverage ratio (DSCR) of the subject investment property. Personal income and employment are not required, and therefore, no Debt-to-Income (DTI) ratio is calculated for DSCR qualification.

For foreclosures that were included within a bankruptcy, eligibility may be permitted based on the bankruptcy discharge date, provided the borrower has vacated the property. The seasoning period is measured from the discharge or dismissal date.

Foreclosure is defined as a “Housing Event”. DSCR loan guidelines typically group foreclosure with other significant derogatory credit events like:

• Short Sale (SS).
• Deed-in-Lieu of Foreclosure (DIL).
• Default Modification (Mod).
• Bankruptcy (Chapter 7, 11, or 13).

The seasoning period starts on the date the property resolution is complete (the completion date). For a foreclosure, this is measured from the date the Judge signed the court documents.

The required waiting period, often called “seasoning,” varies depending on the specific DSCR program:

• Many DSCR programs, such as the Advantage DSCR, River DSCR, and Sharp DSCR, require 3 years of seasoning after a foreclosure.
• Other programs, like the Investor Edge Elite DSCR, require a seasoning period of 4 years after the housing event.
• Some programs, like Prime NQM DSCR, require a minimum seasoning period of just 24 months.

DSCR loans fall under the umbrella of Non-Qualified Mortgages (Non-QM), which are particularly beneficial for borrowers recovering from significant credit events. Unlike conventional or government loans, which require mandatory, extended waiting periods after a foreclosure or bankruptcy, Non-QM loans—including DSCR loans—often allow eligibility much sooner, making it possible to secure financing without waiting for long periods.