FHA Mortgage After Bankruptcy Mortgage Guidelines

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This BLOG On FHA Mortgage After Bankruptcy Mortgage Guidelines Was UPDATED And PUBLISHED On February 5th, 2020

What are the FHA guidelines for mortgages after bankruptcy

Borrowers can qualify for FHA Mortgage After Bankruptcy.

  • There are two types of bankruptcies and HUD, the parent of the Federal Housing Administration, has different requirements with regards to each type of bankruptcy and the waiting period
  • Just waiting out the waiting period after bankruptcy does not automatically make borrowers eligible for FHA Mortgage After Bankruptcy
  • We will discuss the FHA qualification requirements after each type of bankruptcy

In this article, we will cover and discuss FHA Mortgage After Bankruptcy Mortgage Guidelines.

Qualifying For FHA Mortgage After Chapter 7 Bankruptcy

A Chapter 7 Bankruptcy is called total liquidation.

  • Borrowers with little to no income and little to no assets normally file Chapter 7 Bankruptcy
  • This form of bankruptcy eliminates all debts incurred by the consumer with the exception of government loans and certain types of exempt debts

The following types of debts cannot be discharged in a Chapter 7 Bankruptcy:

  • Federal Tax Liens
  • Child Support
  • Alimony 
  • Federal Student Loans
  • Government Fines 
  • Debts Incurred Through Fraud

FHA Loans After Recent Chapter 13 Bankruptcy Discharged Date

Here are the FHA Requirements in qualifying for an FHA Mortgage After Chapter 7 Bankruptcy Discharged Date:

  • The borrower needs to wait 2 years from the discharged date of the Chapter 7 Bankruptcy
  • Lenders normally want to see re-established credit after bankruptcy
  • Secured credit cards are the easiest and quickest way of re-establishing credit after bankruptcy and foreclosure
  • No late payments after bankruptcy
  • Late payments after bankruptcy can be a deal killer
  • So please pay all of your monthly debt obligations on time
  • No overdrafts
  • Minimum of 580 Credit Scores to qualify for an FHA Mortgage
  • 3.5% down payment required

Qualifying For FHA Mortgage During And After Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is when a consumer needs the help of the U.S. Bankruptcy Courts to restructure their debts.

  • When a consumer files for Chapter 13 Bankruptcy protection, the Bankruptcy Courts appoints a trustee
  • Bankruptcy Trustees are private attorneys appointed by the court to oversee the petitioner
  • A percentage of the petitioner’s income is set aside every month and is disbursed to the list of creditors
  • The creditors get paid for a period of 60 months
  • After that payment period is over, the remaining leftover debts are discharged and the consumer no longer owes any debts
  • In order to be eligible for Chapter 13 Bankruptcy, the bankruptcy petitioner needs to be employed

Unemployed petitioners are not eligible for Chapter 13 Bankruptcy Protection.

Qualifying For FHA Loans During Chapter 13 Repayment Period

How to qualify for FHA loans during the 13th repayment period

Borrowers can qualify for an FHA Mortgage one year into a Chapter 13 Bankruptcy Repayment Period.

  • 12 months of timely payments to creditors is required
  • Minimum credit score required is 580 FICO
  • Approval of Chapter 13 Bankruptcy Trustee
  • Manual Underwriting
  • All Manual Underwriting requires Verification Of Rent
  • Verification Of Rent is only valid if the borrower can provide 12 months of canceled checks and/or 12 months of bank statements

If the borrower is renting from a registered property management company, the property manager can sign a VOR Form provided by the lender and this can be used in lieu of canceled checks and/or bank statements.

No Waiting Period After Recent Chapter 13 Discharged Date

There is no waiting period after a Chapter 13 Bankruptcy discharged date to qualify for an FHA Loan:

  • Borrowers can qualify for an FHA Loan after Chapter 13 Bankruptcy discharge date with no waiting period
  • Minimum credit score to qualify for a 3.5% down payment FHA Mortgage after bankruptcy is 580 FICO
  • If Chapter 13 Bankruptcy has been seasoned for less than 2 years from the discharged date, then the borrower’s mortgage application needs to be a manual underwriting
  • All manual underwrites requires verification of rent
  • Timely payments during and after Chapter 13

No Waiting Period After Bankruptcy With NON-QM Loans

Gustan Cho Associates offers a portfolio mortgage program called NON-QM Loans:

  • There is no waiting period after a bankruptcy or foreclosure
  • NON-QM Loans require between 5% to 20% down payment and mortgage rates are normally higher than FHA or Conventional Loans
  • However, borrowers can qualify for this loan program one day out of bankruptcy or foreclosure
  • NON-QM Loans are a great loan program for homebuyers who otherwise could not qualify for a traditional conforming loan
  • This is due to not being able to meet the mandatory waiting period

This holds especially true during a hot real estate market in areas where home prices are appreciating double digits year after year.

Why Am I Told I Do Not Qualify For FHA Mortgage After Bankruptcy?

There are many home buyers who are told that they do not qualify for an FHA Mortgage After Chapter 13 Bankruptcy discharged date by lenders.

  • Borrowers are often confused when HUD Guidelines On Qualifying For FHA Loan After Chapter 13 Bankruptcy
  • HUD Guidelines state there is no waiting period after the discharged date
  • But they are told that they need to wait one year or two after the discharge date of their Chapter 13
  • Banks such as Chase Bank and others often have mandatory waiting periods after the discharge date of Chapter 13
  • This holds true even though HUD does not require any wait periods

The reason for this is because these banks and lenders have OVERLAYS on FHA Loans After Chapter 13 Bankruptcy Discharge.

Qualifying And Choosing Direct Lender With No Overlays

How to qualify and choose a direct lender without overlays

Borrowers who are told they do not qualify for an FHA Mortgage after a Chapter 13 Bankruptcy discharged date, please contact us at Gustan Cho Associates at 262-716-8151 or text for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays to take your mortgage inquiries and answer any questions you may have. Gustan Cho Associates is a five-star national mortgage company licensed in multiple states. We are nationally recognized for no overlays on FHA, VA, USDA, and Conventional Loans. We close most of our loans in 21 days or less.

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