Can I do Nomad with a bankruptcy?
Often times, the reason why someone may find themselves in the Catch Up Nomad position is because of some financial setback that happened in the past. Many times this results in a Catch Up Nomad in having a past bankruptcy.
So, the next logical question is: can someone do the Nomad model if they’ve had a past bankruptcy?
The answer is: yes, you can do the Nomad model if you’ve previously had a bankruptcy.
Loan programs vary over time such that loan programs that are available today might not be available tomorrow and loans programs that don’t exist today may be available tomorrow.
With that being said, there are loan programs, like FHA, where you can get a loan 2 years after your Chapter 7 bankruptcy has been discharged. You can get an FHA loan with 1 year of on-time payments during a Chapter 13 bankruptcy with the approval of the bankruptcy court. It is my understanding that these same rules also apply to VA loans.
For USDA loans, you’ll need to wait three years from the date of discharge of your Chapter 7. However, you can get a USDA loan with just 12 months of on-time payments on your payment plan for a Chapter 13 bankruptcy. You can also get a USDA loan a year after the Chapter 13 has been discharged.
So, you’ll be able to get your first Nomad property relatively easily after bankruptcy (your first two if you and your spouse are alternating loans). What about additional properties?
The typical loan that we recommend for Nomad is conventional financing and they happen to be a bit longer wait after a bankruptcy. How long? 4 years after a Chapter 7 discharge to be able to qualify for a loan or 2 years after a Chapter 13 discharge. If your Chapter 13 was dismissed without a discharge, you’ll need to wait 4 years from the date of the dismissal.
Now… I’ve also heard, from time to time, of special bankruptcy friendly loan programs with higher interest rates. In the right situation, I’d probably be OK with these as well.
Can I do Nomad with a foreclosure?
If you’ve had a foreclosure in the past and you’re wanting to get your financial life back in order maybe with Catch Up Nomad, you may be wondering… is it even possible to do Nomad if I had a previous foreclosure on my credit report. The answer to that question is yes… you can do Nomad if you’ve had a previous foreclosure.
However, doing Nomad after a foreclosure does requires that you do things a little differently since you’ll be severely limited in your ability to get loans for a period of time.
To get your first Nomad property, you’ll probably do an FHA loan first since they’re the easiest to qualify for a loan after a foreclosure. The typical waiting period for doing an FHA loan after a foreclosure is 3 years. So, you’ll need to be 3 years after your foreclosure to be able to do your first FHA loan for Nomad.
After your first loan, we often recommend that you do conventional financing with Nomad. With a foreclosure this becomes increasingly more challenging since the waiting period of conventional financing after a foreclosure is 7 years.
There are some creative strategies we can utilize to do a modified version of Nomad after a foreclosure and I will be teaching a class or two and writing a few articles about that in a future update.
Can I do Nomad with a short sale?
It is not unusual for a Catch Up Nomad to find themselves as a Catch Up Nomad partially because they’ve had some financial challenges in the past. These challenges often involve a short sale where they sold a property and had the bank accept less than what was owed as payment to have the sale go through.
So, once you have a short sale, does that mean you can’t do Nomad anymore? No, you can still do Nomad even if you’ve had a short sale in the past.
There are a couple variables on how long you’ll need to wait to be able to get a new FHA loan after you’ve had a short sale. In some cases, you may not need to wait at all.
For example, if you were not in default at the time you filed for a short sale and you had been current with all on-time payments for mortgages and other installment debt for at least 12 months leading up to the short sale… then there is no waiting period at all and you can get an FHA immediately.
On the other hand, if you were in default (behind on payments) there may be a three year waiting period for getting an FHA loan. The 3 year waiting period begins on the date of the short sale or if it was an FHA-insured loan then it becomes the date FHA paid the claim on the short sale.
There are some additional exceptions to the three year waiting period if you can show extenuating circumstances that caused the default. For example, if there was a serious illness or death in the family of the primary income earner, a divorce in very limited situations or job loss.
I think it goes without saying that you need to show you had good credit prior to the short sale and have good credit now. You’ll need to qualify for the new loan.
The waiting period for conventional financing after a short varies with the amount of down payment. So, to get additional Nomad properties with minimal amounts down, you’ll likely need to wait up to 7 years. If you’re willing to put more down, the time frame you need to wait shortens considerably down to 2 years if you’re willing to put 20% down.
In a future article, I’ll need to write out a modified Nomad model for those with short sales, bankruptcies or foreclosures but there are some creative things we can do that will still follow the lender guidelines.
Can I get an FHA loan if I have student loans?
If you’re considering doing the Nomad model and you already have student loan debt you can still get an FHA loan.
It used to be the if you did not have repayment information for a student loan then lenders would need to estimate your payment on student loans for FHA financing to be 2% of the loan balance per month. Ouch! In mid 2016, FHA changed their policy to be the same as what Fannie/Freddie use which is 1% of the loan balance.
So, if you had $50,000 in student loan debt, it used to be that with FHA you’d have to budget $1,000 per month for payments on that student loan (that’s 2%). With the new guidelines, that is reduced to $500 per month.
This helps improve your debt to income ratio making it easier to qualify for FHA loans.