Were there bad times and bad credit in your past? Are you looking to make a fresh start and buy a home? Here are the guidelines for buying a home with the Fresh Start Loan Program.
* No waiting period after a bankruptcy (BK), short sale, deed-in-lieu, or foreclosure.
* However, the short sale or foreclosure must be completed, not pending, at the time of application.
* Chapter 7 BK must be discharged.
* Chapter 13 BK must be filed, but it can be open with payments being made on time. The court needs to approve the purchase.
* Property can be a detached house, a warrantable condominium, or a one-unit cooperative. (Not a manufactured home.)
* Debt-to-income ratio up to 50% DTI. (55 DTI with compensating factors, but I don’t recommend it.)
What’s the catch?
With such generous approval guidelines, is there a catch? Yes, you must have a good down payment to show that you are willing to take a risk on yourself. What does that mean?
If you aren’t willing to put money into the deal, then the lender feels like it’s too easy for you to walk away and leave them taking on the expense of reselling the property. They don’t want that! They want a home owner who is back on track financially and will make all their payments on time.
The silver lining is that the down payment can be gift money from family. Or, if you have 5% of your own money, the remainder can be a gift.
Here are the Down Payment Requirements
640 credit score = 15% down payment required
620 credit score = 20% down
580 credit score = 25% down
The credit score is the middle score out of three scores from Equifax, Experian, and TransUnion. The lowest score is ignored. The credit report is pulled by the lender.
How to Get a Loan with Fresh Start
Your mortgage broker can get the Fresh Start loan program for you through their wholesale channel. This is not a program you get at a bank or credit union. You get it through a broker. If you’re in California or Washington (and soon Oregon), then I can be your broker. For other states, find a broker in your area.
There are other non-prime loan programs available, but I wanted to highlight this program today, because of its generosity with no waiting period after a major derogatory credit event.
As always, thank you for reading my blog and passing it on to anyone who might benefit from the information.
2 thoughts on “Buying a Home with the Fresh Start Loan Program”
I really like how you talked about needing a down payment and to get a lender to take a chance on you. My husband and I want to buy a new home but we want to make sure we can get a lender before we shop around, so we were considering saving for a bit longer to bring up the total we can lay down. Thank you for the information about how a lender wants a homeowner who is back on track financially and will make their payments on time.
Sometimes it makes sense to save longer for a down payment and sometimes it does not. With interest rates and home prices going up, sometimes it is counter-productive to wait, because it costs more later. (Depending on neighborhood and your situation.) What state are you buying in?