Conventional Loan After Chapter 13 Bankruptcy Guidelines

This Article Is About Conventional Loan After Chapter 13 Bankruptcy Guidelines

What Is The Waiting Period To Qualify For Conventional Loan After Chapter 13 Bankruptcy?

Qualifying for a Conventional Loan After Chapter 13 Bankruptcy discharge is no problem for home buyers needing a conventional loan. However, Fannie Mae and Freddie Mac Guidelines state that there is a two year mandatory waiting period after the Chapter 13 Bankruptcy discharged date. A Chapter 7 Bankruptcy is also known as total liquidation and there is a four-year waiting period to qualify for a conventional loan after a Chapter 7 Bankruptcy discharged date. A Chapter 13 Bankruptcy is also known as repayment or restructuring of debts and you need to have a job and/or continuous income to qualify for a Chapter 13 Bankruptcy. With a Chapter 13 Bankruptcy, the United States Bankruptcy Courts will assign a Chapter 13 Bankruptcy Trustee. Trustees are normally is a private attorney, who will be in charge of the repayment plan for the consumer’s creditors. Normally, the Chapter 13 Bankruptcy Trustee will review the consumer’s gross income, monthly debts, the debts owed to all creditors. Trustees decide on a percentage of the consumer’s household income and allocate that percentage in paying the consumer’s creditors for a period of time, normally between three to five years. Once that period is over, the Chapter 13 Bankruptcy Trustee will discharge all of the consumer’s debts and the consumer will be debt-free. There are mandatory waiting periods to qualify for mortgage loans after bankruptcy for the various different types of mortgage loan programs.

Qualifying For Home Loans After Bankruptcy

All mortgage loan programs require a mandatory waiting period after Chapter 13 Bankruptcy. Once a Chapter 13 Bankruptcy has been completed, the Chapter 13 Bankruptcy Trustee will discharge the consumer’s debts. The consumer will be debt-free. Home Buyers can now qualify for home loans after a Chapter 13 Bankruptcy Discharge as long as they meet the federal mortgage lending guidelines after Chapter 13 Bankruptcy. Here are the qualifying factors in qualifying for a home loan after Chapter 13 Bankruptcy.

Qualifying For Conventional Loan After Chapter 13 Bankruptcy Waiting Period

You cannot qualify for a conventional loan during the Chapter 13 Bankruptcy repayment plans like FHA and VA loans. There are mandatory waiting period requirements after the Chapter 13 Bankruptcy discharged date:

• 2 years mandatory waiting period from the completion of the Chapter 13 Bankruptcy discharge date with no late payments during the Chapter 13 Bankruptcy repayment period
• No late payments after the Chapter 13 Bankruptcy discharged date
• Minimum credit scores of 620 FICO credit scores
• Debt to income ratios of not greater than 50% DTI

These are the maximum debt to income ratios permitted under Fannie Mae and Freddie Mac debt to income ratio guidelines on conventional loans.

Qualifying For FHA Loan After Chapter 13 Bankruptcy

Home Buyers can qualify for an FHA Loan one year into a Chapter 13 Bankruptcy with the approval of the Chapter 13 Bankruptcy Trustee:

• Need proof that he or she has been timely with at least 12 months of payments to all of their creditors and no late payments
• FHA has no waiting period after a Chapter 13 Bankruptcy Discharged Date
• But needs to be done via manual underwriting if the discharge of the Chapter 13 Bankruptcy has been seasoned for less than two years

The reason why it needs to be manual underwriting is that you cannot get an approve/eligible per Automated Underwriting System unless Chapter 13 Bankruptcy has been at least two years out of a Chapter 13 Bankruptcy Discharge Date.

Manual Underwriting Guidelines On FHA And VA Loans

Manual Underwriting and Verification of Rent:

• All manual underwriting FHA loans require verification of rent on all manual underwrites
• Verification of Rent is only valid if and only if the renter can provide 12 months canceled checks that were paid to the landlord
• And/or 12 months bank statements showing the monthly rental payments were transferred out of the renter’s bank account into the bank account of the landlord
• If the renter is renting their unit from a registered property management company, then a VOR completed by the property manager of the property management company is sufficient

VOR Form by property manager can be used in lieu of the 12 months canceled checks and/or 12 months of bank statements.

Minimum Credit Score Guidelines On FHA Manual Underwriting During And/Or After Chapter 13 Bankruptcy

The minimum credit score required for a 3.5% down payment FHA home purchase loan is 580 FICO.

1. Compensating Factors are required for manual underwrites
2. Borrowers with under 580 credit scores and down to a 500 FICO are eligible to qualify for FHA Loans
3. However, if your credit scores are below 580 credit scores, HUD requires a 10% down payment versus a 3.5% down payment

Examples of compensating factors are larger down payment, longevity on the job, credit tradelines, and reserves.

Qualifying For VA Loan After Chapter 13 Bankruptcy Discharged Date

The waiting period to qualify for a VA Loan after a Chapter 13 Bankruptcy discharged date is the same as the waiting period in qualifying for a VA Loan after a Chapter 13 Bankruptcy discharged date:

• There are two years from the date of the bankruptcy discharge of Chapter 7 Bankruptcy discharged date
• Borrowers can qualify for VA Loans one year into a Chapter 13 Bankruptcy repayment period
• There is no waiting period to qualify for VA Loans during the Chapter 13 Bankruptcy Repayment Period

Re-established credit and no late payments after the bankruptcy discharged date is expected.

Qualifying For USDA Loan After Chapter 13 Bankruptcy Discharged Date

USDA loans allow for zero down payment on home purchases. However, the property needs to be in a location in a county and state that has been designed by the USDA Rural Development of the U.S. Department of Agriculture:

1. The waiting period to qualify for a USDA Loan after a Chapter 13 Bankruptcy Discharged Date is the same as the waiting period after a Chapter 7 Bankruptcy Discharged Date
2. It is three years from the discharged date of the bankruptcy
3. Re-established credit and no late payments after the bankruptcy is expected by USDA mortgage lenders

USDA loans have a maximum household income cap. The maximum debt to income ratio on USDA loans is 29% front end and 41% back end debt to income ratio.

Conventional Loan After Bankruptcy

Qualifying for Conventional Loan After Bankruptcy is different than qualifying for FHA Loan After Bankruptcy. To qualify for FHA Loan After Chapter 7 Bankruptcy, there is a two year waiting period after the discharged date of the Chapter 7 Bankruptcy:

• There are no waiting periods to qualify for VA and FHA Loans After A Chapter 13 Bankruptcy Discharged Date
• There is a four-year waiting period to qualify for a Conventional Loan After A Chapter 7 Bankruptcy
• There is a two-year waiting period to qualify for Conventional Loan After Chapter 13 Bankruptcy

If you had a mortgage part of bankruptcy, there is a four-year waiting period to qualify for a conventional loan from the discharged date of your Chapter 7 Bankruptcy. This holds true even though the foreclosure and/or sheriff’s sale happened at a later date from the discharged date of the Chapter 7 Bankruptcy. This is not the case with FHA Loans. If you had a mortgage part of your Chapter 7 Bankruptcy, there is a three year mandatory waiting period from the recorded date of the foreclosure and/or sheriff’s sale which is reflected on the recorded of deeds office of the county the property got foreclosed upon

If you need to qualify for a conventional loan after Chapter 13 Bankruptcy and are looking for a mortgage company licensed in multiple states with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, on weekends, evenings, and holidays to take your phone call and answer any questions you may have.