Bankruptcy Manual Underwriting Guidelines On FHA And VA Loans

Bankruptcy Manual Underwriting Guidelines On FHA And VA Loans:

FHA and VA loans are the only two mortgage loan programs that allow manual underwriting. Manual underwriting is when a borrower cannot get an approve/eligible per automated underwriting system and needs to be manually underwritten by a human underwriter. The AUS cannot determine whether or not the borrower meets all the HUD and/or VA guidelines and determine an AUS approval. Files with a refer/eligible per AUS can be eligible for a manual underwrite on FHA and/or VA loans. Manual underwriting guidelines apply. FHA and VA have similar manual underwriting guidelines.

Many mortgage companies often downgrade AUS-approved files to a manual underwrite due to being considered riskier loans. Gustan Cho Associates are experts in FHA and VA manual underwriting.

Manual Underwriting Explained

http://www.youtube.com/watch?v=V5hhxTYLzow&ab_channel=Gustan Cho Associates-MortgageBankers

Mortgage Borrowers who cannot get an approve/eligible per automated underwriting system can get their file downgraded to manual underwriting.

When it comes to government and conventional loans, FHA and VA Loans are the only two loan programs that allow manual underwriting. Income and credit are the two most important factors when it comes to qualifying for a mortgage. Homebuyers can qualify for FHA and VA Loans during a Chapter 13 Bankruptcy Repayment Plan.

They would need trustee approval. Chapter 13 Bankruptcy does not have to be discharged. However, it needs to be manual underwriting. VA and FHA Manual Underwriting Applies. Mortgage Underwriter’s main concern is that borrowers remain employed and not default with any of their payments during Chapter 13 Bankruptcy Repayment Plan.

Chapter 13 Bankruptcy repayment plan per Bankruptcy Manual Underwriting Guidelines.

Bankruptcy Manual Underwriting Guidelines On Fluctuations In Income

For consumers who get an increase in income after a Chapter 7 Bankruptcy discharge, it does not matter with the courts.

If the petitioner knows that they were going to get a large income increase and that is the reason they filed bankruptcy, they may be in trouble for not disclosing it. If a likely increase was in the works, they would need to have filed Chapter 13 versus Chapter 7 bankruptcy. Chapter 13 Bankruptcies are not as simple as Chapter 7.

Income normally changes during Chapter 13 Bankruptcy repayment plans. If income goes down during the plan, consumers may be able to lower the payments. Consumers can still cure the mortgage default, auto loans, and other payments without extending the plan beyond 60 months.

If income increases during the plan, the bankruptcy trustee may file a motion to increase monthly payments to creditors.

Losing Job During Chapter 13 Bankruptcy Plan

Here is what Chicago Bankruptcy Attorney Chad Hayward says about consumers losing a job during Chapter 13 Bankruptcy Plans:

If you think that the loss of income is only temporary, you can file a motion to suspend your payments temporarily. Or, you seek the help of a family member or friend that can assist with payments. It is important to understand that as long as payments are made, no one will seek to dismiss your case due to the loss of income. In some situations, it is advisable to let the trustee dismiss your case for non-payment and re-file a new case once you obtain new employment. You have options to pay your post-petition mortgage payments outside of your bankruptcy plan and I usually recommend that individuals do so. Although I rarely recommend paying your automobile loan outside of our plan, it is an option. However, usually paying a car loan through the plan allows you to lower your payments and free up funds that can go towards curing your mortgage default or other debt, such as non-dischargeable debt. In addition, you could continue to pay someone such as a family member or family doctor outside of your plan if you have the means to do so and under certain situations, this may be permissible by the court. However, you are required to commit all of your disposable income to your plan payments, so every situation needs to be evaluated on a case by case basis.

Filing Bankruptcy With And/Or Without Spouse

Those who file bankruptcy can file bankruptcy without their spouse.

If the spouse does not file, it has no impact on the spouse’s credit. The spouse can qualify for a mortgage. If there are joint debts and the spouse makes the payments, it will not register as a bad debt on the spouse’s credit report. Most people that file bankruptcy will not include their spouse if they do not need to. However, if the spouse is a co-signer on a debt, the creditor can come after the co-signer if the main borrower filed bankruptcy.

This issue is something you need to go over with your bankruptcy attorney. Most bankruptcy attorneys charge the same whether it is an individual bankruptcy or a joint bankruptcy filing with the spouse. 

Cases Of Co-Signers And Bankruptcy

The topic of co-signers is very important for those who intend in filing bankruptcy. What happens to the co-signers of the petitioner? Will co-signers be liable for the debts of the main petitioner?

This topic is a legal question so we asked our Chicago Bankruptcy Attorney Chad Hayward with this question. Chad Hayward responded with the following statement:

The co-signer, just like in a situation of a non-filing spouse, would be responsible for the debt. There is co-debtor stay that protects a co-borrower from collection efforts when the other co-debtor files for bankruptcy. However, once the bankruptcy is completed, whether it is a Chapter 7 or Chapter 13, the creditor can come after the non-filing co-borrower. Furthermore, there may be some negative impact on the credit score of the non-filing borrower if they do not make the requisite payments. One other unique situation that I have had presented to me is the situation where the filing of bankruptcy by one co-borrower triggers an automatic default of the note as to the other co-borrower and thereby causes the note to be accelerated. Although there may be a co-borrower automatic stay that protects the non-filing borrower, the impact can be adverse. It is important to review such loan documents prior to filing and discuss any possible implications with the non-filing borrower.

Co-signers who co-signed to help the bankruptcy petitioner may get impacted if the main petitioner files bankruptcy. However, this only holds true if the creditor comes after the co-signer. It depends on the creditor. This is a very important topic that needs to be addressed and discussed with the bankruptcy attorney prior to proceeding with filing bankruptcy.

FHA And VA Bankruptcy Manual Underwriting Guidelines

FHA and VA Bankruptcy Manual Underwriting Guidelines are very similar:

Homebuyers can qualify for FHA and VA Loans during Chapter 13 Bankruptcy Repayment Plan per FHA and VA Manual Underwriting Guidelines. However, borrowers need to have been in the repayment plan for at least one year and have made 12 timely payments to the bankruptcy trustee. They do not have to have Chapter 13 Bankruptcy discharged. Per FHA and VA Bankruptcy Manual Underwriting Guidelines, there are no waiting period requirements after the Chapter 13 Bankruptcy discharged date. However, any bankruptcies not seasoned two years after discharged date needs to be manual underwriting.

Manual underwriting means that a human mortgage underwriter needs to underwrite the file. Bankruptcy Manual Underwriting Guidelines apply.

FHA And VA Bankruptcy Manual Underwriting Guidelines And Requirements

FHA and VA Guidelines in qualifying for a mortgage during and after Chapter 13 Bankruptcy is very similar. However, all FHA and VA Loans during Chapter 13 Plans and borrowers without two years seasoning after Chapter 13 discharged date needs to be manual underwriting. Here are FHA and VA Manual Underwriting Guidelines.

Borrowers can qualify for FHA and VA Loans during Chapter 13 Repayment Plan one year into their payment plan with trustee approval. There is no waiting period after the Chapter 13 Bankruptcy discharged date. The maximum debt to income ratio on manual underwriting is 40% front end and 50% back end with two compensating factors. With VA Loans, the underwriter has the discretion to extend maximum debt to income ratios on manual underwriting to 55% back end.

Verification of rent is required on all manual underwrites. Payment shock of less than 5% and/or $100 is considered a compensating factor. Manual underwriting requires one month’s reserves of principal, interest, taxes, insurance (PITI). Gustan Cho Associates exempts verification of rent if borrowers are living rent-free with a family member. The rent-free form provided by the lender will need to be completed, signed, and dated.

Borrowers who need to qualify for a mortgage during and/or after Chapter 13 Bankruptcy with a national mortgage company with no overlays on government and conventional loans can contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.

This BLOG On Bankruptcy Manual Underwriting Guidelines Was Written And Published By Gustan Cho National Managing Director at Gustan Cho Associates. This article was updated on July 27th, 2021 by Gustan Cho and Michelle McCue, associate contributing editor at Gustan Cho Associates. Michelle McCue is a national expert in the secondary mortgage bond markets and a consultant to Gustan Cho Associates and its subsidiaries