FHA Loan Chapter 13 Bankruptcy Discharge Mortgage Guidelines
This Article Is About FHA Loan Chapter 13 Bankruptcy Discharge Mortgage Guidelines
I have many home buyers who have just got Chapter 13 Bankruptcy discharged. Many got a discharge after being going through the Chapter 13 Bankruptcy repayment plan for the past several years and are now ready to qualify for a mortgage. They realize there is no waiting period after the Chapter 13 discharged date and apply for an FHA Loan with a lender. They are often told that they do not qualify by other lenders. This is because they do not meet a two-year mandatory waiting period after a Chapter 13 Bankruptcy discharge. Borrowers can qualify for an FHA loan after the Chapter 13 Bankruptcy discharge date with no waiting period requirements. However, if the discharge has not been seasoned for at least two years, the file needs to be manually underwritten. Not all lenders will do manual underwriting. FHA and VA loans are the only two mortgage loan programs that allow manual underwriting. Many lenders have lender overlays on manual underwriting so they do not do manual underwrites. Many home buyers who apply for FHA Loan Chapter 13 are told by banks, credit unions, and other lenders they cannot qualify for an FHA Loan. Just because one lender says you do not qualify for an FHA loan does not mean you do not qualify with a different lender with no lender overlays like Gustan Cho Associates.
HUD Agency Guidelines Versus Lender Overlays
Not all lenders have the same mortgage guidelines on FHA loans. All lenders need to meet the minimum HUD Agency Guidelines on FHA loans. However, lenders can have higher lending requirements that are above and beyond the minimum HUD Agency Mortgage Guidelines. These higher lending requirements imposed by lenders are called lender overlays. The reason many lenders do not accept Chapter 13 Bankruptcy borrowers unless they do not meet the 2-year waiting period. If the Chapter 13 Bankruptcy discharge has been seasoned for two years, the borrower can get an approve/eligible per automated underwriting system. This is absolutely not true under HUD Guidelines to qualify for FHA Loan During and/or After Chapter 13. The reason why so many lenders deny borrowers who apply for FHA Loans during and/or after Chapter 13 is because they have their own set of lending guidelines called lender overlays. FHA mortgage lender overlays are lending requirements that are above and beyond the minimum HUD guidelines set by each mortgage lender.
In this article, we will discuss and cover FHA Loan Chapter 13 Bankruptcy Discharge Mortgage Guidelines.
Example Of Lender Overlays
Here is a case scenario of lender overlays:
- To qualify for a 3.5% down payment FHA loan, the minimum credit score required by the loan applicant is 580 FICO
- However, most banks will not approve borrowers who do not have at least a 640 FICO credit score
- The higher lending standards is called lender overlays
- Lenders are not required to just go off the minimum HUD guidelines
- Each individual lender can impose and implement tougher credit requirements that are above agency guidelines
- Under HUD mortgage guidelines, there are no waiting period requirements to qualify for an FHA Loan after Chapter 13
A home buyer can qualify for an FHA Loan one day after being discharged from their Chapter 13 Bankruptcy.
FHA Loan Chapter 13 Bankruptcy Discharge On Waiting Period Guidelines
Under HUD 4000.1 FHA Handbook Guidelines, there is no mandatory waiting period to qualify for FHA Loan Chapter 13 Bankruptcy Discharge. Borrowers who are told that they do not qualify for an FHA Loan Chapter 13 Bankruptcy Discharge by banks and other mortgage companies are because each individual bank and lender can set their own overlays. Each lender can set a mandatory waiting period after a Chapter 13 Bankruptcy discharged date. These are called lender overlays. Lenders, such as myself, who do not have overlays on FHA Loans. We do not require any waiting period to qualify for the FHA Loan Chapter 13 Bankruptcy Discharge. However, all FHA Loan Chapter 13 Bankruptcy Discharge underwriting are manual underwriting. All manual underwriting mortgage loans require verification of rent. However, if a borrower lives rent-free with a family to save money for a down payment on a home purchase, Gustan Cho Associates can waive the verification of rent.
How Verification Of Rent Valid For Mortgage Underwriters
VOR can only be valid by the renter providing 12 months of canceled checks and/or 12 months of bank statements:
- Needs to show that the rental payments have been taken out of the renter’s bank account and transferred to the landlord’s bank account
- For renters who have been renting from a property management company, canceled checks and/or bank statements are not required
- VOR, verification of rent form completed and signed by the property manager is the only thing that is required
- VOR Form is a form provided by the lender and completed by the property management representative
- VOR Form is a form certifying that the tenant has been timely on all of his and/or her monthly rental payments for the past 12 months
Gustan Cho Associates Mortgage Group will exempt verification of rent on manual underwriting if the borrower is living rent-free with family. We will provide a rent-free letter that needs to be completed and signed. The rent-free letter can be used in lieu of verification of rent.
FHA Loan During Chapter 13 Bankruptcy Repayment Plan
Borrowers can qualify for both FHA Loans during the Chapter 13 Bankruptcy repayment plan:
- Need to be in a Chapter 13 Repayment for at least 12 months with timely payments
- Need trustee approval
- Needs to be manual underwriting
- Need credit score of 580 or higher for 3.5% down payment home purchase loan
- With under 580 credit scores, need a 10% down payment
FHA Loan Chapter 13 Bankruptcy Discharge And Other Requirements
Borrowers who have been told they do not qualify for an FHA Loan Chapter 13 Bankruptcy Discharge by a bank or other lender, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at email@example.com. The team at Gustan Cho Associates specializes in helping mortgage loan borrowers who just got their Chapter 13 Bankruptcy discharged and need to qualify for an FHA Loan. Gustan Cho Associates no lender overlays on government and conventional loans and do manual underwrites. If you had a Chapter 13 Bankruptcy Discharge, do not be late on any monthly minimum payments. Please make sure that you do not have any bank overdrafts in the past 60 days. Again, please do not hesitate to contact us anytime. The team at Gustan Cho Associates is available 7 days a week, on weekends, evenings, and holidays if you have any questions.
February 4, 2021 - 5 min read