FHA Mortgage After Chapter 13 Bankruptcy Guidelines

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This BLOG On FHA Mortgage After Chapter 13 Bankruptcy Guidelines Was UPDATED And PUBLISHED On May 11th, 2020

What are the bankruptcy guidelines after Chapter 13 for an FHA mortgage

Qualifying For FHA Mortgage After Chapter 13 Bankruptcy

Home Buyers can now qualify for FHA Mortgage After Chapter 13 Bankruptcy with no waiting period after the Chapter 13 Bankruptcy discharged date.

  • I get many calls by borrowers who just got their Chapter 13 Bankruptcy discharged
  • First place they to get qualified are banks, credit unions, and other lenders with overlays
  • They are often told that they do not qualify for a FHA Mortgage After Chapter 13 Bankruptcy until two years after the Chapter 13 Bankruptcy discharged date

HUD Guidelines in qualifying for FHA Mortgage After Chapter 13 Bankruptcy are as follows:

  • states that there are no waiting period after the discharge date of a Chapter 13 Bankruptcy
  • borrowers can qualify for FHA Loans during their Chapter 13 Bankruptcy repayment plan with Trustee Approval
  • Trustees approve housing purchases and we have never had a Trustee not approve a home mortgage

In this article, we will discuss and cover FHA Loan After Chapter 13 Bankruptcy Guidelines.

HUD Guidelines Versus Lender Overlays

Why are banks, credit unions, and most mortgage companies telling borrowers that they need to meet a two year waiting period to qualify for FHA Loan After Chapter 13 Bankruptcy?

  • This is because most banks have lender overlays when it comes to approving FHA Loan After Chapter 13 Bankruptcy
  • Many lenders do not do manual underwriting

Lender overlays are additional mortgage guidelines that are required in addition to the minimum FHA mortgage lending guidelines that is set by the individual banks, credit unions, and mortgage companies.

FHA Mortgage After Chapter 13 Bankruptcy Are Manual Underwriting

Is FHA mortgage after Chapter 13 Bankruptcy is manual insurance

All mortgage loan applications are submitted to the Automated Underwriting System for an automated approval.

The Automated Underwriting System, also commonly referred as AUS, will render three decisions.

  1. Approve/Eligible per Automated Finding
  2. Refer/Eligible per Automated Findings
  3. Refer/Ineligible per Automated Findings

Approve/Eligible per Automated Findings means that the mortgage loan applicant has a solid automated approval:

  • Lenders like myself who do not have any investor overlays can close the FHA Loan as long as the borrower can meet all of the conditions from the automated findings
  • Refer/Eligible means that the borrower is eligible for a FHA Loan
  • However, the automated underwriting system cannot render an automated approval and needs to be manually underwritten by a mortgage underwriter

A refer/ineligible simply means the applicant does not qualify for one or many reasons and do not meet the FHA Guidelines requirements.

Automated AUS Approval Versus Manual Underwriting

All FHA Mortgage After Chapter 13 applications that have been seasoned for two years or less will render a referred/eligible per Automated Underwriting System:

  • All refer/eligible per AUS will require manual underwriting
  • However, many banks, credit unions, and mortgage companies are not set up to do manual underwriting
  • So most borrowers who consult with lenders who do not do manual underwriting often are told that they do not qualify for FHA Mortgage After Chapter 13 Bankruptcy

Home buyer who have recently have a Chapter 13 Bankruptcy discharge and want to qualify for a FHA Mortgage, please contact us at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. Remember that HUD, the parent of FHA  allows home buyers to qualify for FHA Loans during Chapter 13 Bankruptcy as well. Borrowers need to have been in a Chapter 13 Repayment plan for at least 12 months. We are available 7 days a week, evenings, weekends, and holidays to take your calls and answer all of your questions.

Other Requirements For FHA Mortgage After Chapter 13 Bankruptcy

What are the other requirements for an FHA mortgage after bankruptcy in Chapter 13

All manual underwriting mortgage applications will require rental verification.

  • Verification Of Rent is only valid if the renter has been paying their rental payments to their landlord with a bank check and can provide 12 months canceled checks to the mortgage underwriter
  • The renter can also provide 12 months bank statements if the renter has paid their rental payments online
  • Rental payments cannot be late and needs to have been timely in the past 12 months

If the renter has been renting their apartment or home from a registered property management company the following can be done:

  • then a VOR, Verification Of Rent, form that is provided by the lender
  • can be completed and signed by the property management representative
  • the VOR Form can be used in lieu of 12 months canceled bank checks and/or 12 months bank statements

What If I Do Not Have Verification Of Rent And Live Rent Free With Family

Borrowers who cannot provide verification of rent and are living rent free with family do not need to provide rental verification. VOR can be waived on a manual underwriting if borrowers is living rent free with family members. Loan officer will provide a rent free letter and needs to be signed by the person who the borrower is living rent free from. Feel free to contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com.

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