Waiting periods
| Scenario | Fannie Mae | Freddie Mac |
|---|---|---|
| Chapter 7 -- standard | 4 years after discharge | 4 years after discharge |
| Chapter 7 -- extenuating | 2 years after discharge | 2 years after discharge |
| Chapter 13 -- standard | 2 years after discharge | 2 years after discharge |
Extenuating circumstances: Fannie Mae defines these as nonrecurring events beyond the borrower's control -- serious illness, job loss due to employer closure, or divorce. Documentation and a letter of explanation required. Minimum 10% down payment.
Advantages of conventional loans
- No mortgage insurance with 20% down -- FHA charges MIP for life; conventional PMI drops off at 80% LTV
- Lower rates at higher scores -- with 740+, conventional rates beat FHA by 0.25% to 0.5%
- Higher loan limits in most areas
- No upfront funding fee -- unlike FHA (1.75%) or VA (2.15%)
- More property types -- condos, investment properties, second homes
When conventional beats FHA
Preparing for conventional
- Years 1-2: Rebuild credit with secured cards and credit builder loans
- Years 2-3: Add unsecured card and possibly small auto loan
- Years 3-4: Maximize savings for 20% down to avoid PMI
- Year 4: Get pre-approved 60-90 days before house hunting
The wait is worth it. No mortgage insurance on a $250,000 home saves $150 to $300 per month -- that is $54,000 to $108,000 over 30 years. If you can wait the extra 2 years beyond the FHA timeline, conventional often makes better financial sense.