Buying Home Again After Bankruptcy And Foreclosure
This BLOG On Buying Home Again After Bankruptcy And Foreclosure Was UPDATED On February 11th, 2019
Chances are for those who have a bankruptcy on their credit history it is not a decision which was taken lightly. Circumstances happen to people and they exercise the option to use the to clean the slate and start over again. However they may never have dreamed it would be so difficult to start over again. If a home loss occurred due to foreclosure in the bankruptcy the first reality check as to how this ordeal impacts someone may hit when they set out to rent for the first time in many years. It can be challenging to rent, turn on utilities, purchase a car or proceed in life with regards to any financial endeavor. Suddenly a person may feel at a great disadvantage and wonder if life will ever be the same again. Buying Home Again After Bankruptcy and/or after housing event is possible for those who have re-established themselves.
Re-Establishing And Buying Home Again After Bankruptcy
Good news! There is life after bankruptcy! Although some lenders require a time of seasoning for the bankruptcy to have been discharged for a period of time there are loan options available immediately after discharge and as well as lending options during an open bankruptcy. In certain cases the home buyer will have to submit the mortgage payment to their trustee during an open bankruptcy for an approval to add the debt payment to there bankruptcy plan. The rules and guidelines will vary from lender to lender. The best possible chance of purchasing a home during or after Chapter 13 Bankruptcy is to find a lender with no overlays.
What Are Lender Overlays
Lenders overlays are the rules of individual mortgage companies and banks that are stricter than the rules that government entities establish for various mortgage products.
- Lenders determine their own rules and thus a lender with no overlays may accept
- With literally 100s of possible lender overlays they could pertain to time of bankruptcy, debt to income ratio, minimum credit score and loan to value
- Thus knowing all of the guidelines to FHA loans may lead a borrow to believe they qualify for a new home loan when a lender can determine for any number of reasons they will require different guidelines than those stated specifically for the Loan Program and product selected
- More often than not loans fall apart during or close to closing due to the borrower being surprised by and declined due to lender overlays
Most Lenders do not accept any home buyers while they are in a Chapter 13 Bankruptcy due to their lender overlays. Most lenders require two year waiting period after Chapter 13 Bankruptcy discharged date to qualify for VA and FHA Home Loans. Under both VA Guidelines and HUD Guidelines, borrowers can qualify for VA and FHA Loans during Chapter 13 Bankruptcy one year into their repayment plan. The Gustan Cho Team at Loan Cabin Inc. has no overlays for borrowers in a current Chapter 13 Bankruptcy Repayment Plan nor anyone with a recent Chapter 13 Bankruptcy discharge. It does need to be manual underwriting.
Re-Establishing Credit After Bankruptcy And After Housing Event
In addition to seeking a lender with no overlays, a borrower needs to strive to improve the overall credit score after having a bankruptcy on record.
- This will increase the number of possible lending programs to choose from, maximum loan to value, down payment options and interest rates
- One of the best things to do after filing for a bankruptcy is to be proactive immediately after and begin to rebuild credit
- Secured credit cards are one of the first steps to take in re-establishing credit
- The worst thing to do is to simply not do anything, as the bankruptcy will lower credit, borrowing ability and affect purchasing power
The light at the end of the tunnel, it is good to know after working hard to make payments to a trustee for 5 years or after doing all the necessary steps to get a bankruptcy discharged a person can qualify for a home loan without a 5 year waiting period or any seasoning of the discharge.
About The Author Apryl Boyce
Apryl Boyce is a writer for Gustan Cho Associates Mortgage & Real Estate Information Resource Center. Apryl has extensive knowledge in real estate and lending and has been in the mortgage industry for over 10 years. She has experience in both commercial and residential lending and has been in the mortgage business during and after the 2008 Sub Prime Mortgage & Real Estate Meltdown. Looking forward to more interesting informative blogs by Apryl Boyce in the coming weeks.