Qualifying For FHA Loans After Chapter 13 Bankruptcy

This BLOG On Qualifying For FHA Loans After Chapter 13 Bankruptcy Was Written By Matthew Herbolich NMLS 1649154

Bankruptcy is a fairly common legal option when one’s liabilities exceed their income and assets.

  • Bankruptcies is a federal law that gives consumers a chance to discharge and/or re-structure their debts and have a fresh financial start.
  • Most folks do not realize that they can get credit and home loans after bankruptcy.
  • Bankruptcies will plummet credit scores but that is only temporary.
  • As the bankruptcy ages on credit report, credit scores will gradually increase.
  • Consumers can easily get their credit scores back up in the upper 600’s six months after a Chapter 7 or Chapter 13 Bankruptcy by getting secured credit cards.
  • Home Buyers can qualify for FHA Loans After Chapter 13 Bankruptcy and Chapter 7 Bankruptcy after meeting waiting period requirements.

I will be discussing Qualifying For FHA Loans After Chapter 13 Bankruptcy on this blog.

Types Of Bankruptcies

The two most common forms of personal bankruptcies are the chapter 7 bankruptcy and chapter 7 bankruptcy. Mortgage borrowers can qualify for FHA Loans After Chapter 13 Bankruptcy and after Chapter 7 Bankruptcy.

  • A chapter 13 is a reorganization bankruptcy (as opposed to a 7 which discharges all debts) designed for debtors with regular income who can pay back at least a portion of their debts through a repayment plan.
  • If a bankruptcy petitioner makes too much money to qualify for Chapter 7 bankruptcy, they may have no choice but to file a Chapter 13 case.
  • There are also other reasons for selecting a chapter 13 over a chapter 7 bankruptcy.
  • In a successful Chapter 13 bankruptcy, the debtor is usually able keep their property but pays all or a portion of the debt owed over a period of 3 to 5 years.
  • However, home buyers who want a mortgage loan after filing the chapter 13 cannot qualify for FHA Loans due to lender overlays.
  • Many lenders lenders have overlays on FHA Loans After Chapter 13 Bankruptcy.
  • Most lenders will make mortgage loan applicants wait for 1 to 2 years after the discharge of the chapter 13 repayment plan.
  • The waiting period to qualify for FHA Loans After Chapter 13 Bankruptcy is not HUD Guidelines but lender overlays.
  • FHA Guidelines does not require any waiting period to qualify for FHA Loans After Chapter 7 Bankruptcy discharged date.
  • But according to the new requirements for an FHA loan after chapter 13 bankruptcy launched on August 11, 2017, it is possible for homeowners and home buyers to get a loan without a waiting period.

Note: Borrowers can qualify for FHA Loans one year into a Chapter 13 Bankruptcy repayment plan but needs to be a manual underwrite. Borrowers can qualify for FHA Loans After Chapter 13 Bankruptcy discharged date with no waiting period. However, if the borrower’s Chapter 13 Bankruptcy discharge has been seasoned less than 2 years, it needs to be a manual underwrite.

What Are Lender Overlays?

There are two types of lending guidelines with FHA Loans:

All lenders needs to meet HUD Guidelines (HUD is the parent of FHA).

  • However, not all direct lenders need to go with the minimum FHA Guidelines and can have higher credit and underwriting requirements.
  • This higher standard required by lenders is called lender overlays.
  • For example, a home buyer can qualify for FHA Loans one year into a Chapter 13 Bankruptcy repayment plan with Trustee Approval.
  • However, it needs to be a manual underwrite.
  • A FHA Lender can have overlays and not accept any manual underwrites.  
  • There is no waiting period to qualify for FHA Loans after Chapter 13 Bankruptcy.
  • However, any chapter 13 bankruptcy discharge with less than two year seasoning needs to be manually underwritten.
  • Most lenders will require a one year or two year waiting period after a Chapter 13 Bankruptcy discharged date as part of their lender overlays even though does not require it.
  • The Matthew Herbolich Team at USA Mortgage does not have any lender overlays on government and/or conventional loans.

Qualifying For FHA Loans

To summarize briefly, the following are few points in the new guidelines in qualify for FHA Loans After Chapter 13 Bankruptcy:

  • Most lenders have lender overlays
  • The Matthew Herbolich Team at USA Mortgage are direct lenders with no lender overlays
  • We are direct lenders with minimum HUD guidelines for FHA loans after chapter 13 bankruptcy
  • If the chapter 13 bankruptcy has been discharged, there is no waiting period to qualify for the FHA loans
  • If the discharge has been seasoned for less than 2 years, the FHA loan will need to be manually underwritten

In conclusion, FHA borrowers may not qualify for an FHA loan after chapter 13 bankruptcy with a mortgage company that has overlays. However, as long as a borrower meets minimum HUD Guidelines, they can qualify with us, a direct lender licensed in multiple states with no overlays. This means a qualified borrower often does not have to incur a waiting period after Chapter 13 Bankruptcy discharged date.

Therefore, It is often the best course of action for borrowers to seek FHA loan solutions with direct lenders without overlays, and chapter 13 borrowers are no exception.

About Matthew Herbolich MBA, JD, LL.M.

Matthew Herbolich MBA, JD, LL.M. is a senior adviser and mortgage loan officer with The Gustan Cho Team at USA Mortgage. Matthew has extensive experience in the real estate and lending industry and is a guest writer for Gustan Cho Associates Mortgage & Real Estate Information Center.

Matt is an expert in the following:

  • FHA Loans
  • VA Loans
  • USDA Loans
  • Conventional Loans
  • FHA 203k Loans
  • Reverse Mortgages
  • Jumbo Mortgages
  • Construction Loans
  • NON-QM Loans
  • Bank Statement Loans For Self Employed Borrowers
  • Condotel & Non-Warrantable Financing

The Gustan Cho Team at USA Mortgage is available 7 days a week, evenings, weekends, and holidays. For any questions on this topic or other mortgage topics, please contact us at 1-800-900-8569 or email us at gcho@gustancho.com.

Matthew Herbolich MBA, JD, LLM NMLS 1649154

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.

Leave a Reply

Your email address will not be published. Required fields are marked *