What Counts as a Significant Derogatory Credit Event
Fannie Mae considers certain credit events so damaging that they require mandatory waiting periods before you can get a new mortgage. These include bankruptcy, foreclosure, deed-in-lieu of foreclosure, short sales (also called preforeclosure sales), and mortgage charge-offs.
Your lender will scan your credit report for these events in the public records section and within individual account tradelines. They look for specific codes and remarks like "Foreclosure," "Forfeit deed-in-lieu of foreclosure," or "Settled for less than full balance."
Sometimes these events don't show up clearly on credit reports. If your lender suspects you had a foreclosure or bankruptcy but can't confirm it from the credit report alone, they'll ask you for court documents, discharge papers, or settlement statements to verify what happened and when.
Bankruptcy Waiting Periods
Chapter 7 and Chapter 11 bankruptcies require a 4-year waiting period from the discharge or dismissal date. This applies whether the bankruptcy was successfully completed or dismissed by the court.
Chapter 13 bankruptcy gets different treatment because you're already making payments during the bankruptcy process. If you successfully complete your Chapter 13 plan and receive a discharge, you only wait 2 years from the discharge date. But if your Chapter 13 gets dismissed because you couldn't complete the payment plan, you wait 4 years from the dismissal date.
Multiple bankruptcies within 7 years trigger a 5-year waiting period from the most recent discharge or dismissal. This rule applies even if the bankruptcies were different types. Say you had a Chapter 7 discharge 5 years ago and just completed a Chapter 13 — you'd wait 5 years from the Chapter 13 discharge date.
Foreclosure Waiting Periods
Foreclosure carries the longest standard waiting period at 7 years from the completion date. The completion date is when the foreclosure process finished, not when you first missed payments or received a notice of default.
Between years 3 and 7 after a foreclosure, you can get a mortgage with extenuating circumstances, but restrictions apply. Your loan-to-value ratio caps at 90%, you can only buy a primary residence, and you can only do limited cash-out refinances. No second homes, investment properties, or regular cash-out refinances until the full 7 years pass.
If you had both a foreclosure and bankruptcy on the same mortgage, your lender can use the shorter bankruptcy waiting period if they can document that the mortgage debt was discharged in the bankruptcy. Otherwise, they use whichever waiting period is longer.
Other Mortgage-Related Credit Events
Short sales, deeds-in-lieu of foreclosure, and mortgage charge-offs all require 4-year waiting periods. These are alternatives to foreclosure that still represent significant credit risk to lenders.
A deed-in-lieu means you voluntarily transferred your property back to the lender instead of going through foreclosure. A short sale means you sold the property for less than you owed with the lender's approval. A mortgage charge-off means the lender gave up trying to collect the debt and wrote it off as a loss.
Credit reports don't always clearly identify these events. Your lender might see a remark code like "Settled for less than full balance" or a payment status code of "9" indicating a charge-off, but they may need additional documentation from you to confirm exactly what happened.
How Extenuating Circumstances Work
Extenuating circumstances can cut most waiting periods in half, but you need solid documentation. Fannie Mae defines extenuating circumstances as events beyond your control that caused the financial hardship — things like job loss, medical emergencies, divorce, or death of a primary wage earner.
You can't just claim extenuating circumstances. Your lender needs documentation like termination letters, medical bills, divorce decrees, or death certificates that show the timing and impact of the event. The circumstances must have directly caused your inability to make mortgage payments.
Some waiting periods can't be reduced. Chapter 13 bankruptcy discharge already has the shortest waiting period at 2 years, so no exceptions apply. Multiple bankruptcy filings can drop from 5 years to 3 years, but only if the most recent bankruptcy resulted from extenuating circumstances.
Re-establishing Credit Requirements
Waiting out the time period isn't enough. You must actively re-establish credit during the waiting period to show you can manage debt responsibly again. Fannie Mae requires traditional credit accounts — credit cards, auto loans, or other installment loans that report to credit bureaus.
Nontraditional credit like utility bills or rent payments won't satisfy this requirement. You need actual credit accounts with payment history showing on your credit report. The credit re-establishment must demonstrate a pattern of responsible payment behavior since the derogatory event.
Your loan must either receive an automated underwriting approval from Desktop Underwriter (DU) or meet minimum credit score requirements if manually underwritten. The specific score requirements depend on your loan program, down payment, and other factors outlined in B3-5.1-01: General Requirements for Credit Scores.
Documents You'll Need
Gather documentation for any significant credit events in your past. For bankruptcy, you need the discharge order or dismissal notice showing the exact date. For foreclosure, you need the completion documents or final judgment.
If claiming extenuating circumstances, collect supporting documentation like medical records, termination letters, or divorce papers that show the timing and cause of your financial hardship. The documentation must clearly connect the circumstances to your inability to make payments.
Your lender will also review your loan application declarations where you must disclose any bankruptcies, foreclosures, or other significant credit events. Failing to disclose these events can result in loan denial or fraud allegations.
Common Complications
Credit reports often contain errors or incomplete information about significant credit events. A foreclosure might show as "settled" instead of "foreclosed," or the completion date might be wrong. Your lender will need to verify the actual facts through court records or other documentation.
Timing calculations can get tricky. The waiting period starts from the completion, discharge, or dismissal date — not from when you first missed payments or filed paperwork. Make sure you and your lender are using the correct start date for the waiting period calculation.
Some borrowers think paying off old debts will restart waiting periods, but that's not how it works. The waiting period is based on when the original derogatory event occurred, not when you later resolved any remaining balances.
Investment property purchases and cash-out refinances face additional restrictions even after meeting basic waiting periods. These transaction types may require longer waiting periods or have loan-to-value limitations that don't apply to primary residence purchases.
References
For the official guidelines, see B3-5.3-07: Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit (08/07/2019)
General Information
Identification of Significant Derogatory Credit Events in the Credit Report
Foreclosure
Foreclosure and Bankruptcy on the Same Mortgage
Deed-in-Lieu of Foreclosure, Preforeclosure Sale, and Charge-Off of a Mortgage Account
Summary — All Waiting Period Requirements
General Information
The presence of significant derogatory credit events dramatically increases the likelihood of a future default and represents a significantly higher level of default risk. Examples of significant derogatory credit events include bankruptcies, foreclosures, deeds-in-lieu of foreclosure, preforeclosure sales, short sales, and charge-offs of mortgage accounts.
Note: The terms “preforeclosure sale” and “short sale” are used interchangeably in this Guide and have the same meaning (see Deed-in-Lieu of Foreclosure, Preforeclosure Sale, and Charge-Off of a Mortgage Account below).
The lender must determine the cause and significance of the derogatory information, verify that sufficient time has elapsed since the date of the last derogatory information, and confirm that the borrower has re-established an acceptable credit history. The lender must make the final decision about the acceptability of a borrower’s credit history when significant derogatory credit information exists.
This topic describes the amount of time that must elapse (the “waiting period”) after a significant derogatory credit event before the borrower is eligible for a new loan salable to Fannie Mae. The waiting period commences on the completion, discharge, or dismissal date (as applicable) of the derogatory credit event and ends on the disbursement date of the new loan for manually underwritten loans. See
, for additional information pertaining to DU loan casefiles, including how the waiting period is determined. Also see , for additional information.
Note: The requirements pertaining to significant derogatory credit are not applicable to high LTV refinance loans. (See
.)
Identification of Significant Derogatory Credit Events in the Credit Report
Lenders must review the credit report and the Declarations in the loan application to identify instances of significant derogatory credit events. Lenders must review the public records section of the credit report and all tradelines, including mortgage accounts (first liens, second liens, home improvement loans, HELOCs, and manufactured home loans), to identify previous foreclosures, deeds-in-lieu, preforeclosure sales, charge-offs of mortgage accounts, and bankruptcies. Lenders must carefully review the current status of each tradeline, manner of payment codes, and remarks to identify these types of significant derogatory credit events. Remarks Codes are descriptive text or codes that appear on a tradeline, such as “Foreclosure,” “Forfeit deed-in-lieu of foreclosure,” and “Settled for less than full balance.”
Significant derogatory credit events may not be accurately reported or consistently reported in the same manner by all creditors or credit reporting agencies. If not clearly identified in the credit report, the lender must obtain copies of appropriate documentation. The documentation must establish the completion date of a previous foreclosure, deed-in-lieu or preforeclosure sale, or date of the charge-off of a mortgage account; confirm the bankruptcy discharge or dismissal date; and identify debts that were not satisfied by the bankruptcy. Debts that were not satisfied by a bankruptcy must be paid off or have an acceptable, established repayment schedule.
Note: Timeshare accounts are considered installment loans and are not subject to the waiting periods described below.
Bankruptcy (Chapter 7 or Chapter 11)
A four-year waiting period is required, measured from the discharge or dismissal date of the bankruptcy action.
Exceptions for Extenuating Circumstances
A two-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the discharge or dismissal date of the bankruptcy action.
Bankruptcy (Chapter 13)
A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period required for Chapter 13 bankruptcy actions is measured as follows:
two years from the discharge date, or
four years from the dismissal date.
The shorter waiting period based on the discharge date recognizes that borrowers have already met a portion of the waiting period within the time needed for the successful completion of a Chapter 13 plan and subsequent discharge. A borrower who was unable to complete the Chapter 13 plan and received a dismissal will be held to a four-year waiting period.
Exceptions for Extenuating Circumstances
A two-year waiting period is permitted after a Chapter 13 dismissal, if extenuating circumstances can be documented. There are no exceptions permitted to the two-year waiting period after a Chapter 13 discharge.
Multiple Bankruptcy Filings
For a borrower with more than one bankruptcy filing within the past seven years, a five-year waiting period is required, measured from the most recent dismissal or discharge date.
Note: The presence of multiple bankruptcies in the borrower’s credit history is evidence of significant derogatory credit and increases the likelihood of future default. Two or more borrowers with individual bankruptcies are not cumulative, and do not constitute multiple bankruptcies. For example, if the borrower has one bankruptcy and the co-borrower has one bankruptcy this is not considered a multiple bankruptcy.
Exceptions for Extenuating Circumstances
A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the most recent bankruptcy discharge or dismissal date. The most recent bankruptcy filing must have been the result of extenuating circumstances.
Foreclosure
A seven-year waiting period is required, and is measured from the completion date of the foreclosure action as reported on the credit report or other foreclosure documents provided by the borrower.
Exceptions for Extenuating Circumstances
A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the completion date of the foreclosure action. Additional requirements apply between three and seven years, which include:
Maximum LTV, CLTV, or HCLTV ratios of the lesser of 90% or the maximum LTV, CLTV, or HCLTV ratios for the transaction per the Eligibility Matrix.
The purchase of a principal residence is permitted.
Limited cash-out refinances are permitted for all occupancy types pursuant to the eligibility requirements in effect at that time.
Note: The purchase of second homes or investment properties and cash-out refinances (any occupancy type) are not permitted until a seven-year waiting period has elapsed.
Foreclosure and Bankruptcy on the Same Mortgage
If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.
Deed-in-Lieu of Foreclosure, Preforeclosure Sale, and Charge-Off of a Mortgage Account
These transaction types are completed as alternatives to foreclosure.
A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. These are typically identified on the credit report through Remarks Codes such as “Forfeit deed-in-lieu of foreclosure.”
A preforeclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer. These are typically identified on the credit report through Remarks Codes such as “Settled for less than full balance.”
A charge-off of a mortgage account occurs when a creditor has determined that there is little (or no) likelihood that the mortgage debt will be collected. A charge-off is typically reported after an account reaches a certain delinquency status, and is identified on the credit report with a manner of payment (MOP) code of “9.”
A four-year waiting period is required from the completion date of the deed-in-lieu of foreclosure, preforeclosure sale, or charge-off as reported on the credit report or other documents provided by the borrower.
Exceptions for Extenuating Circumstances
A two-year waiting period is permitted if extenuating circumstances can be documented.
Note: Deeds-in-lieu and preforeclosure sales may not be accurately or consistently reported in the same manner by all creditors or credit reporting agencies. See Identification of Significant Derogatory Credit Events in the Credit Report above for additional information.
Summary — All Waiting Period Requirements
The following table summarizes the waiting period requirements for all significant derogatory credit events.
Waiting Period Requirements
Waiting Period with Extenuating Circumstances
4 years
2 years
Multiple Bankruptcy Filings
5 years if more than one filing within the past 7 years
3 years from the most recent discharge or dismissal date
Foreclosure
Additional requirements after 3 years up to 7 years:
90% maximum LTV ratios
2
Purchase, principal residence
Limited cash-out refinance, all occupancy types
Requirements for Re-establishing Credit
After a bankruptcy, foreclosure, deed-in-lieu of foreclosure, preforeclosure sale, or charge-off of a mortgage account, the borrower’s credit will be considered re-established if all of the following are met:
The waiting period and the related additional requirements are met.
The loan receives a recommendation from DU that is acceptable for delivery to Fannie Mae or, if manually underwritten, meets the minimum credit score requirements based on the parameters of the loan and the established eligibility requirements.
The borrower has traditional credit as outlined in Section B3–5.3, Traditional Credit History. Nontraditional credit or “thin files” are not acceptable.
When both a bankruptcy and foreclosure are disclosed on the loan application, or when both appear on the credit report, the lender may apply the bankruptcy waiting period if the lender obtains the appropriate documentation to verify that the mortgage loan in question was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting period must be applied.
References to LTV ratios include LTV, CLTV, and HCLTV ratios. The maximum LTV ratios permitted are the lesser of the LTV ratios in this table or the maximum LTV ratios for the transaction per the Eligibility Matrix.
