2017 FHA Loan Requirements After Chapter 13 Bankruptcy

This ARTICLE On FHA Loan Requirements After Chapter 13 Bankruptcy Was Updated On August 11th, 2017

Under HUD Guidelines, home buyers and homeowners can qualify for a FHA Loan after Chapter 13 Bankruptcy with no waiting period. HUD (The U.S. Department of Housing and Urban Development) is the parent of the Federal Housing Administration (FHA).

What Are The 2017 FHA Loan Requirements After Chapter 13 Bankruptcy

  • FHA Loan Requirements After Chapter 13 Bankruptcy may be different for every mortgage lender due to their mortgage lender overlays.
  • Lenders with no overlays will go off minimum HUD Guidelines with FHA Loan Requirements After Chapter 13 Bankruptcy.
  • Most lenders will have waiting period requirements after a home buyer has a Chapter 13 discharge.
  • However, HUD Guidelines On Mortgage After Chapter 13 discharge does not require any waiting period after the discharged date of the 13.
  • I get dozens of calls and inquiries every day from potential home buyers who have worked very hard in completing their repayment plan through their Bankruptcy and just got discharged to be told by multiple lenders that they cannot qualify for a FHA Loan until one year or two year after their discharged date of their 13.
  • This is so not true and lenders who advise borrowers who recently got a Chapter 13 discharge should tell them that they may not qualify with them but are able to qualify for a FHA Loan with some other mortgage company with no lender overlays¬†with waiting period after a Chapter 13 discharged date.

Manual Underwriting Mortgage Process

FHA Loan Requirements After Chapter 13 Bankruptcy works like any other FHA loan requirements.

  • However, they all need to be manual underwriting files if the waiting period after the bankruptcy is less than two years.
  • FHA states that if a FHA borrower has a Chapter 13 Bankruptcy discharge, there is no waiting period to qualify for a FHA Loan.
  • However, if the Chapter 13 Bankruptcy discharge has been seasoned for less than two years, then the FHA Loan After Chapter 13 Bankruptcy discharge will need to be manually underwritten.
  • All manually underwritten mortgage loans will require verification of rent and will require compensating factors.
  • With manually underwritten mortgage loans, there is a lot of underwriter’s discretion that comes into play.
  • A mortgage underwriter can approve a FHA Loan on a manual underwrite with a debt to income ratio of higher than 50% DTI if the borrower has strong compensating factors.
  • Compensating Factors are positive factors that a mortgage borrower.
  • Examples includes longevity on the job, reserves, larger down payment,¬†verification of rent, low payment shock, and other positive factors such as a non-borrowing spouse with great income that is not being used to qualify the borrower.

Verification Of Rent is mandatory for all manual underwriting FHA Loans:

  • Home Buyers who are living rent free with family, relatives, and friends unfortunately cannot provide rental verification.
  • Rental Verification is required with manual underwriting.
  • Home Buyers who can afford rent often times live with family, relatives, and friends rent free so they can save enough money and develop reserves for a home purchase, but under the eyes of mortgage regulation experts, this is not acceptable and rental verification is required.

FHA Loan Requirements During Chapter 13 Repayment Plan

Home buyers or homeowners can qualify for a FHA purchase and/or refinance mortgage during a Chapter 13 repayment plan one year into the bankruptcy. It needs to be a manual underwrite plus the borrower will need the approval of the Chapter 13 Trustee which is normally not a problem. Borrowers need to provide one year’s on time payment history of their creditors and verification of rent is required.

Other Requirements

Other requirements to qualify for a FHA Loan During and After Chapter 13 Bankruptcy includes the following:

  • Minimum credit score 580 FICO
  • Minimum down payment for borrowers with at least 580 credit score is 3.5% down payment
  • Up to 6% sellers concessions is allowed by sellers to contribute for buyers closing costs
  • Sellers concessions can only be used for closing costs and cannot be used for down payment
  • Underwriter decides the maximum debt to income ratio on manual underwrites. I have seen manual underwriting borrowers get approved with over 50% debt to income ratios as long as they had strong compensating factors
  • No late payments during and after the bankruptcy discharged date

Please contact The Gustan Cho Team at USA Mortgage at 262-878-1965 with any questions. Mortgage Loan Applicants can also text Gustan on his cell at 262-716-8151. USA Mortgage is a division of DAS Acquisition Company LLC NMLS 873293, a direct lender with no lender overlays on government and conventional loans.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

3 Comments

  1. Justin Parris says:

    My name is Justin Parrish I’ve just been discharged from a Chapter 13 bankrupcy.in Costa Mesa CA. I own a condo 4 miles from the Pacific valued at approximately 400k plus and rising every month. I owe approximately 200k to Wells Fargo for a equity line at 6.69%. I paid off my original loan.I would like to refinance for a much lower rate
    As soon as I mention bankruptcy the conversation stalls. My credit is awful because of this but I’ve always made my payments on everything I have ever owned. Zak20022@gmail.com

  2. Mario Lopez says:

    My name is Mario, I have a Chp 13 discharge bankruptcy of June 14,2016. I have 12 month of verified rental payments on time, however, I had a sale of a home that shows 2x month of late mortgage payment 24months ago. Although I have 0 mortgage late payments for 12 months but not in 24months can I still qualify for an FHA loan?

    • Gustan Cho, NMLS 873293 says:

      The late payment during and after a Chapter 13 Bankruptcy, especially a mortgage late payment, will be a problem and the chances are that you may have to wait 2 years. However, we have non-qm loans that you can qualify for. Please email me at gcho@nationwidemtg.net or call me at 262-878-1965. You can text me at 262-716-8151.