FHA/VA Bankruptcy Loans Mortgage Lending Guidelines

This Article Covers FHA/VA Bankruptcy Loans Mortgage Lending Guidelines:

FHA and VA loans are two government loan programs for owner-occupant mortgages. FHA/VA loans are two of the three government loan programs available in the United States. Government loans are originated and funded by private lenders. Lenders offer government loans with little to no down payment at competitive rates due to the government guarantee. However, only eligible borrowers with a Certificate of Eligibility can qualify for VA loans.

HUD and VA Bankruptcy Agency Mortgage Guidelines are similar and almost the same. HUD, the parent of FHA, is the agency in charge of FHA loans. The Department of Veterans Affairs is the agency that sets rules and regulations on VA loans. Although the guidelines are very similar on FHA/VA Bankruptcy Loans, VA agency guidelines are more lenient than HUD. What this means is it is easier to qualify for VA versus FHA loans with a prior bankruptcy and prior bad credit. This holds especially true on manual underwrites.

FHA and VA loans are the only two loan programs that allow manual underwriting on home mortgages. We will cover more on manual underwriting in later paragraphs in this article on FHA/VA Bankruptcy Loans. Borrowers can qualify for FHA/VA Bankruptcy Loans after meeting certain waiting period requirements.

There are two different types of bankruptcies:

  • Chapter 7 Bankruptcy
  • Chapter 13 Bankruptcy

There are certain agency lending guidelines on FHA/VA Chapter 7 versus Chapter 13 Bankruptcy. We will be covering the eligibility requirements on FHA/VA Chapter 7 versus Chapter 13 Bankruptcy mortgage guidelines.

Types Of FHA/VA Bankruptcy Loans: Chapter 7 Bankruptcy Explained

Chapter 7 Bankruptcy Explained

In this section, we will cover the two different types of bankruptcies that are most common for homebuyers. Chapter 7 and Chapter 13 Bankruptcy. Chapter 7 Bankruptcy is often referred to as total liquidation. What this means is the person’s debts are liquidated to pay creditors. Filers of Chapter 7 Bankruptcy do have exempt assets they can keep (consult your bankruptcy attorney).

Chapter 7 Bankruptcy benefit people who have little to no income, does not have a stable source of income, has little to no assets, have substantial outstanding collections/charged-off accounts, has judgments, and has mainly unsecured debts. Depending on the area, there is a maximum income cap for individuals and married couples for those who can qualify for Chapter 7 Bankruptcy. Petitioners need to meet the Chapter 7 Bankruptcy Means Test. From the time a person files Chapter 7 Bankruptcy, it takes normally 90 to 120 days for a discharge. What a discharge means is the Bankruptcy Trustee will recommend to the United States Bankruptcy Court Judge that all of the petitioner’s debt be discharged. During this time frame, the Bankruptcy Trustee will schedule a meeting of creditors where creditors can contest the bankruptcy. Normally, most creditors will not show up at the meeting of creditors. This means the petitioner will no longer be obligated on the debts listed on the Chapter 7 Bankruptcy petition. Chapter 7 Bankruptcy is highly recommended for consumers who are drowning in debts and have outstanding collections, charged-off accounts, and judgments. The team at Gustan Cho Associates has helped countless people rebuild and get their credit scores over 700 FICO in less than one year after Chapter 7 Bankruptcy discharge.

Both FHA and VA loans have mandatory waiting period requirements after Chapter 7 Bankruptcy.

Types Of FHA/VA Bankruptcy Loans: Chapter 13 Bankruptcy Explained

Chapter 13 Bankruptcy is a restructuring plan under the supervision of a Bankruptcy Trustee. Chapter 13 Bankruptcy benefits people who have assets and have a stable source of income.

Under Chapter 13 Bankruptcy, the petitioner requests a debt restructuring plan. The Bankruptcy Court will appoint a trustee to the petitioner. The trustee will restructure the debts of the petitioner creditors over a course of 36 to 60 months. A percentage of the petitioner’s income will be allocated to pay for creditors. Creditors will get paid a monthly discounted amount that will be applied towards the petitioner’s debts.

After the term of the repayment is over, the remaining debts of the petitioner are then discharged. A bankruptcy discharge means the petitioner is no longer liable to any debts and is debt-free.  In order to be eligible for Chapter 13 Bankruptcy, the person needs a stable income. The means of stable income can be from a full-time job and/or business. Mortgage borrowers can qualify for an FHA and/or VA loan during the Chapter 13 Bankruptcy repayment plan. There is no waiting period to qualify for an FHA and/or VA loan after Chapter 13 Bankruptcy discharge.

We will discuss and cover the qualifying guidelines during and after Chapter 13 Bankruptcy on FHA and/or VA loans. The agency guidelines on qualify for an FHA and/or VA loan during and after Chapter 13 Bankruptcy are the same.

Qualifying For FHA And VA Loans After Chapter 7 Bankruptcy

How to qualify for FHA and VA loans after Chapter 7 bankruptcy

The agency mortgage guidelines to qualify for an FHA and VA loan after Chapter 7 Bankruptcy are the same. Borrowers can qualify for an FHA and VA loan two years after the Chapter 7 Bankruptcy discharged date.

Just meeting the two-year mandatory waiting period does not automatically guarantee an automatic FHA and VA loan approval. To get an approve/eligible per automated underwriting system after a Chapter 7 Bankruptcy discharge, the borrower will need no late payments after bankruptcy, rebuilt, and reestablished credit. Any late payments after bankruptcy are frowned upon by lenders.

Lenders will consider anyone with late payments after bankruptcy a second offender and will most likely deny granting any loans. Borrowers should start rebuilding their credit as soon as possible after their bankruptcy discharge. The team at Gustan Cho Associates has helped thousands of people rebuild and reestablish their credit after bankruptcy. GCA Mortgage has helped thousands of people rebuild and boost their credit scores over 700 FICO in less than one year after their bankruptcy discharge.

Qualifying For FHA And VA Loans After Chapter 13 Bankruptcy

Borrowers can qualify for FHA and VA loans during and after Chapter 13 Bankruptcy.

FHA and VA loans are the only two loan programs that borrowers in an active Chapter 13 Bankruptcy repayment plan can qualify for a mortgage. Chapter 13 Bankruptcy does not have to get discharged. However, it needs to be manual underwriting. Bankruptcy Trustee approval is required. The team at Gustan Cho Associates will assist the borrower in getting trustee approval. People worry about the trustee approval of their home mortgage during the Chapter 13 Bankruptcy repayment plan. Out of the tens of thousands of people we have helped during the Chapter 13 Bankruptcy repayment period, we never had a bankruptcy trustee not approve a home purchase.

To become eligible for an FHA and/or VA loan during the Chapter 13 Bankruptcy repayment plan, the borrower needs to be in the payment plan for at least 12 months. They need to have made timely payments to the bankruptcy trustee during the Chapter 13 Bankruptcy payment plan with no late payments. Chapter 13 Bankruptcy does not need to be discharged. There is no waiting period after the Chapter 13 Bankruptcy discharged date to qualify for an FHA and/or VA loan. If the discharge has been seasoned for less than 2 years, the file needs to be a manual underwrite. Gustan Cho Associates are experts in FHA and VA manual underwriting.

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