Loans 1 Day After Bankruptcy
Loans 1 Day After Bankruptcy
Securing a conventional or government-backed loan immediately after bankruptcy is typically impossible due to mandatory waiting periods. Non-QM loans, which are mortgages that do not comply with the strict Qualified Mortgage (QM) standards, provide the necessary flexibility for borrowers recovering from significant credit events. Non-QM Loans do not allow loans 1 day after bankruptcy but do have shorter waiting period as compared to conventional loans.
Immediate Eligibility and Seasoning Requirements
Bankruptcy (including Chapter 7, 11, and 13) is classified as a Significant Derogatory Credit Event. Although general Non-QM marketing suggests no waiting period after bankruptcy for qualified individuals, specific program matrices outline minimum seasoning thresholds.
A. Minimum Required Seasoning The shortest mandatory seasoning period explicitly defined in the sources is 12 months:
- 12 Months Seasoning: Our Prime Non-QM Series requires a 12 month seasoning period for bankruptcies (Chapters 7 and 13). Bankruptcy is specifically noted as not considered a housing event within this program, and it is permitted in combination with a housing event.
B. Calculating the Waiting Period The seasoning period starts from the date the bankruptcy event is formally resolved:
- Chapter 7 & 11: Seasoning is calculated from the discharged or completed date to the loan application date.
- Chapter 13: Seasoning is calculated from the discharged, dismissed, or completed date to the loan application date. If the Chapter 13 bankruptcy was discharged, the filing date is used for the lookback period, provided the bankruptcy has been discharged for a minimum of 12 months.
- Ineligibility: Borrowers who are under the repayment plan of a Bankruptcy are not eligible. Borrowers currently in bankruptcy proceedings are ineligible for the Non-QM Connect program.
C. Standard Non-QM Seasoning Tiers If a borrower does not meet the criteria for the 12-month program, other Non-QM products offer eligibility based on longer seasoning periods, which often correlate with higher available Loan-to-Value (LTV) ratios:
- 2 Years Seasoning: Required for Advantage (LTV ?80%) and Edge Standard.
- 3 Years Seasoning: Required for DSCR Investor Classic products and DSCR loan programs.
- 4 Years Seasoning: Required for Advantage (LTV >80%), Edge Elite, Horizon Elite Jumbo, and Advantage for Multiple Bankruptcies.
- 5 Years Seasoning: Required as the threshold for Significant Derogatory Credit Events in the Non-QM Connect program.
D. Multiple Bankruptcies While our Advantage program allows multiple bankruptcies with a 4-year seasoning period, many other Non-QM programs specify that multiple bankruptcies, regardless of seasoning, are ineligible.
Underwriting and Documentation Requirements
Despite the expedited timelines, we maintain a strict focus on confirming the borrower’s capacity and financial integrity.
A. Ability to Repay (ATR)
Non-QM loan applications must document the borrower’s ability to repay the mortgage debt. This reasonable belief is based on employment history, capacity, and credit profile.
B. Credit Re-establishment and Explanation
- Re-established Credit: Borrowers with prior significant derogatory credit events must have reestablished acceptable credit verified after the credit event.
- Written Explanation (LOE): A written explanation is required for significant derogatory information, particularly for bankruptcies in the most recent two years. This explanation is crucial for the Originator to determine if the credit problem was due to extenuating circumstances (factors clearly beyond the control of the borrower, such as death or major illness of a spouse or child) or reflected financial mismanagement.
C. Financial Requirements
- Down Payment: A down payment ranging from 10% to 20% is required. The exact amount depends on the borrower’s credit scores and the time elapsed since the credit event.
- Cost: Non-QM Mortgage Rates are normally higher than government and conventional loans, reflecting the increased risk inherent in lending to borrowers with recent credit challenges.
- Refinance Strategy: The immediate benefit of using a Non-QM loan is that borrowers can acquire financing sooner. Once they have re-established credit, they can refinance the Non-QM loan into a traditional government and/or conforming loan to potentially lower their mortgage rate.
FAQ's
The shortest defined seasoning period is 12 months from the discharge or dismissal date for Chapter 7 or Chapter 13 bankruptcies under our Prime Non-QM Series.
The seasoning period is typically 2 years if the LTV is 80% or less, but increases to 4 years if the LTV is greater than 80%.
Many Non-QM programs, such as our Edge Series, state that multiple bankruptcies, regardless of seasoning, are ineligible.
Down payment requirements for Non-QM loans typically range from 10% to 20%, depending on the borrower’s credit score and the event’s longevity.
Non-QM Mortgage Rates are normally higher than traditional loan rates because they compensate the lender for the increased risk associated with the borrower’s credit history.
A written explanation is required for the bankruptcy, especially if it occurred within the most recent two years, to determine if the issue was due to extenuating circumstances or financial mismanagement.
Yes, the bankruptcy must be discharged, dismissed, or completed. Borrowers under the repayment plan of a Bankruptcy are not eligible.
Some Non-QM programs state there is no waiting period after bankruptcy for qualified individuals, while others impose a short seasoning period.
Non-Qualified Mortgage (Non-QM) loans are specifically designed for borrowers who do not meet the mandatory waiting period required by traditional lending standards.
Conventional and government loans impose a mandatory waiting period after a bankruptcy, which typically prevents immediate qualification.
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For informational purposes only. No guarantee of accuracy is expressed or implied. Programs shown may not include all options or pricing structures. Rates, terms, programs and underwriting policies subject to change without notice. This is not an offer to extend credit or a commitment to lend. All loans subject to underwriting approval. Some products may not be available in all states and restrictions may apply. Equal Housing Opportunity.
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