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Massachusetts Consumers Buying Homes After Bankruptcy or Foreclosure

Our chapter 7 bankruptcy clients often ask how, if ever, they can buy a home after they have filed for federal bankruptcy protection. First of all, we counsel our clients to rebuild credit scores. Second, we address the Fannie Mae rules and regulations. Those rules clearly state that credit histories that includes a bankruptcy “represent a higher credit risk” however, “this does not mean that the borrower’s credit will not be acceptable.” They are looking for current outstanding debt, following the bankruptcy, four years time (absent “extenuating circumstances”), and reestablished credit. The regulations are not hard to comply with for many of our clients.

Of course, the usual Fannie Mae rules apply too; the borrower must not finance more than 10 properties, must be owner occupied (with nominal exceptions), and numerous credit requirements. There are ample rules about the title as well.

If you study the Fannie Mae foreclosure requirements, they are quite similar in that they require significant documentation of the foreclosure and other credit “incidences” and they “generally require four years to elapse before we will consider the borrower to have a reestablished credit history.” They are also looking for four (4) credit references, including one from a landlord. However, written into the regulations is that they will consider granting a new mortgage after one year if the borrower encountered “extraordinary circumstances.”

Fannie Mae, the largest private home mortgage lender, has tightened income requirements, including income and revolving debts. In particular, they now require debts that are almost paid off to be included in the borrower’s Email This Post