Gustan Cho The Mortgage Expert,
Publish On: April 8, 2022
FHA Loan after Chapter 7 Bankruptcy Mortgage Guidelines states homebuyers can qualify for an FHA loan two years after the discharged date with re-established credit and no late payments. Homebuyers can qualify for a mortgage after bankruptcy. Here are the bullet points we are going to cover in this blog in qualifying for an FHA loan after Chapter 7 Bankruptcy:
- HUD guidelines on FHA loans after bankruptcy
- The importance of re-establishing credit after bankruptcy
- Using secured cards is the easiest and fastest way to rebuild and re-establish credit after bankruptcy
- Eligibility requirements after bankruptcy
Government and conventional loans require a mandatory waiting period after bankruptcy. Non-QM loans one day out of bankruptcy does not have waiting period requirements. However, a 30% down payment is required.
FHA Loan After Chapter 7 Bankruptcy Mortgage Requirements
Home Buyers can qualify for an FHA loan After Chapter 7 Bankruptcy after a two-year waiting period after the discharge date of their Chapter 7 Bankruptcy. A Chapter 7 Bankruptcy offers consumers a fresh start in their financial life. A Bankruptcy will wipe out most debts a consumer has and will put a halt to all collection activities and procedures.
Benefits From Bankruptcy
Bankruptcies will discharge most debts like collection accounts, judgments, charge-offs, secured debts, personal debts, and unsecured debts. The things that cannot be discharged with a Chapter 7 Bankruptcy are government debts such as tax liens, court-ordered child support and/or alimony payments, and government-backed student loan debts.
Fraudulent Debts Cannot Be Discharged in Bankruptcy
Debt incurred due to fraud cannot be discharged with a Chapter 7 Bankruptcy. The great news with a Chapter 7 Bankruptcy is that the consumer will be debt-free and there is life after filing for a Chapter 7 Bankruptcy. Consumers can qualify for new credit such as auto loans, and mortgage loans after a Chapter 7 Bankruptcy.
Re-establishing Credit To Qualify For an FHA Loan After Chapter 7 Bankruptcy
There are many instances where consumers can get credit scores of higher than 700 FICO one year after the Chapter 7 Bankruptcy discharge date with proper re-establishing of their credit. Right after you file a Chapter 7 Bankruptcy, your credit scores will plummet more than 150 FICO points. However, that sudden drop is temporary. Even if you do nothing to re-establish credit and improve credit scores, consumer credit scores will naturally rise over time.
Rebuilding Credit To Qualify For FHA Loan After Chapter 7 Bankruptcy Discharge
The drop after filing for Chapter 7 Bankruptcy is like having a major hangover. As time passes, your hangover will recover and so will credit and credit scores. As time passes and the Chapter 7 Bankruptcy ages on the credit report, it will have less of an impact on credit scores. Again, the great news is that homebuyers can now qualify for an FHA loan After Chapter 7 Bankruptcy just after two years of the Chapter 7 Bankruptcy Discharge Date.
Preparing For FHA Loan After Chapter 7 Bankruptcy
The minute Chapter 7 Bankruptcy is discharged, they should start re-establishing their credit. The fastest and easiest way of re-establishing credit is by getting three to five secured credit cards. The sooner you get several secured credit cards, the better off you will be. This is because having aged credit tradelines is one of the most important factors that will provide you with a strong credit profile.
What Are Compensating Factors?
Mortgage lenders consider having aged multiple credit tradelines as compensating factors. Make sure to never be late after the Chapter 7 Bankruptcy discharged date. No late payments after bankruptcy. Many lenders will not approve anyone who had any late payments after a bankruptcy and/or foreclosure. Lenders expect timely payments on all credit obligations after a bankruptcy and/or foreclosure. One late payment can be a reason for credit denial.
FHA Loan After Chapter 13 Bankruptcy Mortgage Guidelines
Borrowers can qualify for FHA loans one year into their Chapter 13 Bankruptcy Repayment Plan. Borrowers need to be in the repayment plan for 12 months. Chapter 13 Bankruptcy does not have to be discharged. It needs to be manual underwriting. Over 30% of our borrowers at Gustan Cho Associates are folks who are in a current Chapter 13 Bankruptcy repayment plan. Trustee approval is required. There is no waiting period to qualify for FHA Loans after the Chapter 13 Bankruptcy discharged date. Gustan Cho Associates has no overlays on government and conventional loans.
Importance of Verification of Rent
For renters renting an apartment or home, make sure to make all rental payments with a check: Cash paid for the rent with a receipt is not valid. VOR is only valid by providing 12 months of canceled checks paid to the landlord. To qualify for an FHA loan After Chapter 7 Bankruptcy, borrowers need a minimum credit score of 580 FICO credit scores. However, if credit scores are under 620 FICO credit scores, the lender may ask for verification of rent. Renters renting from a property management company can have the property manager complete a VOR form in lieu of providing canceled checks. VOR Form provided by the lender signed by the property management company is valid with no proof of payment. 12 months of canceled checks and/or 12 months of bank statements are not required with a signed VOR form.
Lenders With No Overlays On FHA Loan After Chapter 7 Bankruptcy
Borrowers looking for an FHA Loan After Chapter 7 Bankruptcy and are looking for a lender with no investor overlays, contact us at Gustan Cho Associates at 800-900-8569. Or text us for a faster response. Or email us at alex@gustancho.com. We do not have any FHA Investor Overlays and just go off the automated findings of the Automated Underwriting System. We are available 7 days a week, on evenings, weekends, and holidays.
Types of Bankruptcy
In the following paragraph, we will cover and discuss FHA guidelines on Chapter 13 versus Chapter 7 Bankruptcy on FHA loans for home purchases and refinance. Homebuyers can qualify for FHA loans after bankruptcy per FHA Guidelines on Chapter 13 versus Chapter 7 Bankruptcy. However, the FHA Guidelines On Chapter 13 Versus Chapter 7 Bankruptcy are different. Many home buyers get different answers from different lenders when they ask about FHA Guidelines On Chapter 13 Versus Chapter 7 Bankruptcy. Government loans and Conventional loans have different mortgage guidelines on qualifying for a mortgage on Chapter 13 Bankruptcy Versus Chapter 7 Bankruptcy.
Types Of Bankruptcy Mortgage Guidelines
There are two types of FHA Guidelines On Chapter 13 Versus Chapter 7 Bankruptcy:
- The first Is the HUD Guidelines (HUD is the parent of FHA)
- The second Is lender overlays that are required by individual lenders
Buying Home After Bankruptcy And Foreclosure
The real estate and credit meltdown of 2008 has affected millions of Americans throughout the United States. Millions of hard-working Americans have lost their jobs and businesses. Others have lost their homes and had to settle for minimum wage jobs. Bankruptcy and foreclosure rates have soared to historical highs. Millions of Americans who lost their jobs or businesses were living off their credit cards and other credit and they eventually could not pay the debts they incurred. Those who could afford to file bankruptcy did so while others did not have attorney fees to file bankruptcy and just dodged bill collectors.
Recovery and Rebuilding After Bankruptcy and Being Able To Buy a Home Again
Fortunately, many people recover after bankruptcy and/or a housing event or periods of extended unemployment. Many still have outstanding debts, charge-offs, and collections and are contemplating filing bankruptcy to clear their old debts. I run into situations like these all the time. I am not a bankruptcy attorney and cannot offer legal advice but can offer my opinion. Homebuyers who have had prior bad credit, charge-offs, and collections from years ago can qualify for FHA loans with outstanding collections and charge-offs without filing bankruptcy. Filing bankruptcy might not be the best option.
Qualifying For FHA Loans After Chapter 7 Bankruptcy
Per FHA Guidelines On Chapter 13 Versus Chapter 7 Bankruptcy, qualifying for FHA Loans after Chapter 7 Bankruptcy discharged date is different than borrowers who have a Chapter 13 Bankruptcy. Here are the HUD Guidelines After Chapter 7 Bankruptcy. HUD requires a two-year waiting period after the Chapter 7 Bankruptcy discharge date. Minimum credit scores of 580 for 3.5% down payment FHA Loans. No late payments after Chapter 7 discharged date. One or two late payments are not a deal killer as long as the borrower gets an approve/eligible per Automated Underwriting System Approval.
Qualification Requirements On FHA Loans During And After Chapter 13 Bankruptcy
Borrowers can qualify for FHA loans during Chapter 13 Repayment and after Chapter 13 discharge date with Gustan Cho Associates. Homebuyers can qualify for FHA Loan during a Chapter 13 repayment period. They need to be paying on their repayment of their Chapter 13 Bankruptcy for at least 12 months. Need trustee approval: 100% of the time the Chapter 13 Bankruptcy Trustee will approve it. There is no waiting period after the Chapter 13 Bankruptcy discharge date at Gustan Cho Associates. Verification Of Rent is required unless borrowers are living with family. Minimum credit scores are required for a 3.5% down payment FHA Loan home purchase loan. Needs to be manual underwriting.
Qualifying For FHA Loans With Open Collections And Charge Offs
People who have old collections or charge-off accounts can still qualify for FHA loans without having to pay them. The older the collection account is, the less likely the collection agency will come after consumers. Charge-off accounts are creditors who wrote consumers off. Creditors do sell charge-off accounts to collection agencies for pennies on the dollar.
Statute of Limitation on Collections and Charged-Off Debts
Consumers should also check with their state’s statute of limitation laws and see how long their debt collector has to collect an old debt. Another thing consumers need to consider is that derogatory credit items will fall off the credit report after 7 years from the date of the last activity. Bankruptcies stay on your credit report for a period of 7 years. The older the derogatory credit item is, the less impact it has on credit scores. If debt collectors are leaving consumers alone waiting out the statute of limitations can be an option. Consumers can start re-establishing new credit and improve credit scores right after bankruptcy and/or foreclosure.
Easiest And Quickest Way To Re-Establish Credit
The easiest fix would be getting new secured credit cards to rebuild credit. The positive new credit will boost credit scores and offset old negative credit. There are many cases where people have had prior bad credit but re-established new positive credit and have credit scores of over 700 FICO in less than a year.
FHA Guidelines On Chapter 13 Versus Chapter 7 Bankruptcy Mortgage Options
Gustan Cho Associates is a mortgage company licensed in 48 states with over 160 wholesale mortgage lenders. We have countless wholesale mortgage lenders with no overlays on government and conventional loans. We help many people who have had prior bad credit with outstanding open collections, charge-offs, and prior late payments qualify for FHA loans. Those with outstanding collections and charge offs, do not pay them. Paying them, it will reactivate the statute of limitations and drop credit scores.
Qualifying For FHA Home Loans With Judgments
There are cases where filing for bankruptcy might be the only option. For consumers who have multiple judgments for large dollar amounts filing bankruptcy might be the best possible option. Judgments are the worst type of derogatory item a consumer can have. Judgments are normally good for at least 10 years. A judgment creditor can renew a judgment for another 10 years depending on which state the judgment was filed.
How Can I Qualify for an FHA Loans with Judgments?
Homebuyers can qualify for FHA loans with outstanding judgments and tax liens. They need to have a payment arrangement with the judgment creditor. They need to provide that they have been paying the judgment creditor for three months. Borrowers with judgments need to provide lenders with three months of canceled checks to qualify for FHA loans with outstanding judgments. Other lenders might have internal overlays that the judgment is paid off. Borrowers can also settle with the judgment creditor for a percentage of what they owe. Borrowers can also contest the judgment if they have not been properly served and ask the court to vacate the judgment.
FHA Guidelines On Chapter 13 Versus Chapter 7 Bankruptcy: Is Bankruptcy Best For Me?
All in all consumers with outstanding collections, charge-offs, and judgments should do proper due diligence prior to filing bankruptcy. Get a free consultation from bankruptcy attorneys. Talk to mortgage lenders. Check the statute of limitations in your state. Bankruptcy is a great tool and a great federal law that protects a consumer against creditors. However, make sure that bankruptcy is the best option. Consumers who have older collections and many years have passed and the collection agencies are leaving them alone, maybe bankruptcy might not be the best option. Homebuyers who need to qualify for an FHA loan after bankruptcy, whether it is Chapter 7 or Chapter 13, 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. Gustan Cho Associates is a national five-star mortgage company with no lender overlays on government and conventional loans. We are available 7 days a week, on evenings, weekends, and holidays.
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