Chapter 13 Mortgage Guidelines On Government And Conventional Loans

This ARTICLE On Chapter 13 Mortgage Guidelines On Government And Conventional Loans Was PUBLISHED On October 27th, 2019

There are two types of consumer bankruptcies:

  • Chapter 7 Bankruptcy
  • Chapter 13 Bankruptcy

Chapter 7 Bankruptcy is also called total liquidation.

  • Most consumer debts and judgments can be discharged with Chapter 7 Bankruptcies
  • Any non-exempt assets of consumers are liquidated with Chapter 7 Bankruptcies
  • Once the Chapter 7 Bankruptcy is discharged, the consumer is debt-free
  • Chapter 13 Bankruptcy is for consumers who have assets and need a repayment plan structured by the Bankruptcy Courts
  • Petitioners need a job
  • Unemployed and/or consumers without steady incomes cannot be eligible for Chapter 13 Bankruptcy
  • A Trustee, a private lawyer, is assigned by the Bankruptcy Courts
  • The Trustee will create a repayment plan for a certain period which is normally 60 months
  • A portion of the petitioner’s wages are deducted and the proceeds are distributed to the list of creditors
  • Once the petitioner makes 60 timely payments, the rest of the debt is discharged and they are debt-free

In this article, we will cover and discuss Chapter 13 Mortgage Guidelines on government and conventional loans.

Chapter 13 Mortgage Guidelines On FHA And VA LoansChapter 13 Mortgage Guidelines

Homebuyers can qualify for a mortgage during and after Chapter 13 Bankruptcy discharged date.

  • Most loan programs require a mandatory waiting period after the discharged date of Chapter 13 Bankruptcy
  • However, VA and FHA Loans allow borrowers to qualify for VA and/or FHA Loans during Chapter 13 Bankruptcy repayment plan
  • There is no waiting period after Chapter 13 Bankruptcy discharged date on VA and FHA Loans
  • Any bankruptcies that have not been discharged for at least two years need to be manually underwritten
  • Therefore, all borrowers who need to qualify for VA and/or FHA Loans during Chapter 13 Bankruptcy repayment plan without the BK being discharged need to be manually underwritten
  • Any Chapter 13 Bankruptcies that has been discharged but not seasoned two years needs to be a manual underwrite
  • Compensating Factors are very important with manual underwriting

We will further discuss manual underwriting and the importance of compensating factors in the next paragraph.

Manual Underwriting Guidelines On FHA And VA Mortgages

Manual Underwriting Mortgage Guidelines on VA and FHA Loans are very similar.

Here are the manual underwriting guidelines on VA and FHA Loans:

  • No late payments in the past 12 months, preferably 24 months
  • Verification Of Rent
  • Gustan Cho Associates will exempt verification of rent for borrowers who have been living rent-free with a family member
  • Debt to income ratio of 31/43 with no compensating factor
  • Debt to income ratio of 37/47 with one compensating factors
  • Debt to income ratio of 40/50 with two compensating factors

Manual underwriting guidelines are no different than a borrower who can get an automated underwriting system approval.

Difference Between Manual Underwriting Versus Automated Underwriting System ApprovalWhat is Difference Between Manual Underwriting Versus Automated Underwriting System Approval

The only difference is the debt to income ratio requirements are lower than AUS Approval.

  • Not all lenders do manual underwriting
  • A large percentage of borrowers are FHA and/or VA manual underwriting borrowers
  • FHA and VA are the only two loan programs that allow manual underwriting
  • VA and FHA Loans are the only two loan programs that allow borrowers during Chapter 13 Bankruptcy repayment to qualify for home loans
  • Fannie Mae and Freddie Mac have mandatory waiting periods after Chapter 13 Bankruptcy discharged date

There is no waiting period after Chapter 7 or Chapter 13 Bankruptcy discharged date on Non-QM Loans.

Fannie Mae And Freddie Mac Chapter 13 Guidelines On Conventional Loans

Fannie Mae and Freddie Mac set the mortgage guidelines on Conventional Loans.

Here are the bankruptcy guidelines on Conventional Loans:

  • Four year waiting period after Chapter 7 Bankruptcy
  • Four-year waiting period after Chapter 13 Bankruptcy dismissal
  • Two-year waiting period after Chapter 13 Bankruptcy discharged date
  • Four-year waiting period after a short sale and/or deed in lieu of foreclosure
  • Seven-year waiting period after regular foreclosure

Fannie Mae and Freddie Mac does not allow borrowers in an active Chapter 13 Bankruptcy eligible to qualify on conventional loans.

For more information about qualifying for a mortgage during and/or after Chapter 13 Bankruptcy, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at [email protected] Our team at Gustan Cho Associates Mortgage Group are available 7 days a week, evenings, weekends, and holidays.

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