Qualifying For Home Loan After Chapter 13 Bankruptcy

Home buyers can qualify for home loan after Chapter 13 Bankruptcy one day after the Chapter 13 discharged date. There are two types of Bankruptcies: Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. The waiting periods to qualify for home loan after Chapter 13 Bankruptcy and after Chapter 7 Bankruptcy are different. We will touch on qualifying for home loan after Chapter 7 Bankruptcy but mainly cover qualifying for home loan after Chapter 13 Bankruptcy. Many mortgage lenders do have mortgage lender overlays when it comes to home loan after Chapter 13 Bankruptcy. Mortgage lender overlays are additional mortgage lending guidelines that is implemented by individual mortgage lenders that are in addition to the minimum federal mortgage lending guidelines. Every mortgage loan programs, whether it is Conventional Loans, FHA Loans, VA Loans, USDA Loans, have their own set of federal minimum mortgage lending guidelines when it comes to qualifying for home loan after Chapter 13 Bankruptcy. We will mainly cover qualifying for home loan after Chapter 13 Bankruptcy with FHA Loans on this article since FHA Loans are by far the most popular mortgage loan program in the United States today.

Chapter 13 Bankruptcy Versus Chapter 7 Bankruptcy

There are two types of bankruptcies. A Chapter 7 Bankruptcy is called total liquidation which benefits for consumers who do not have any assets or are unemployed and/or underemployed. With a Chapter 7 Bankruptcy, a consumer can wipe out all of their debts and have a fresh financial start in life. There are certain debts that cannot be discharged in a Chapter 7 Bankruptcy such as government loans, tax liens, and child support. However, most debts and liabilities such as collection accounts and judgments can be fully discharged in a Chapter 7 Bankruptcy. Consumers who have a Chapter 7 Bankruptcy discharge can qualify for a home loan after 2 years from the discharge date of the Chapter 7 Bankruptcy with no late payments and re-established credit after the Chapter 7 Bankruptcy discharged date.

Chapter 13 Bankruptcy are for consumers who have income and assets but need to restructure their debts and take time to pay them off. In order to qualify for a Chapter 13 Bankruptcy, you need to have a job. Once you file Chapter 13 Bankruptcy and a Bankruptcy Trustee will be appointed to you by the United States Bankruptcy Courts. The Bankruptcy Trustee will go over your finances and income and will take a percentage of your monthly income and use those proceeds to pay your list of creditors. The Chapter 13 Bankruptcy re-payment plan will be anywhere between 3 to 5 years and once you have made timely payments during your Chapter 13 Bankruptcy plan and that period is over, the remaining debts owed to your creditors are totally discharged and you can start a fresh financial start. There are certain requirements in qualifying for home loan after Chapter 13 Bankruptcy.

Qualifying For FHA Home Loan After Chapter 13 Bankruptcy

There are certain rules and mortgage regulations when qualifying for FHA Home Loan After Chapter 13 Bankruptcy. Home buyers can qualify for a home loan after Chapter 13 Bankruptcy one year into the Chapter 13 Bankruptcy re-payment plan with the approval of the Chapter 13 Bankruptcy Trustee. There is no waiting period to qualify for home loan after Chapter 13 Bankruptcy after the date of the Chapter 13 Bankruptcy discharged date. Unfortunately, all FHA Loan mortgage loan borrowers who just had a Chapter 13 Bankruptcy discharge with less than two years seasoning needs to be manual underwriting , which means that a mortgage underwriter needs to manually underwrite the mortgage loan application.

What Do Underwriters Look For When Manually Underwriting Home Loan After Chapter 13 Bankruptcy

Mortgage loan applications where the mortgage loan borrower had a Chapter 13 Bankruptcy discharged under 2 years will not get an Automated Approval per the Automated Underwriting System. The Automated System will not render an approve/eligible but will render a refer/eligible which means that the mortgage loan file needs to be manually underwritten. Unfortunately, not all mortgage lenders do manual underwriting and many folks who just got their Chapter 13 Bankruptcy discharged are told that they do not qualify from banks and other mortgage lenders who do not do manual underwriting or they have mortgage lender overlays and have their own waiting period after a Chapter 13 Bankruptcy discharge. Some mortgage lenders may require a two year waiting period after a Chapter 13 Bankruptcy discharge date due to their mortgage lender overlays. I do not have any mortgage lender overlays for home buyers who need to qualify for home loan after Chapter 13 Bankruptcy and a large percentage of my business are borrowers who just got a Chapter 13 Bankruptcy discharge and needs to qualify for a home loan.

Timely Payments And Timely Payment History

One of the most important factors mortgage underwriters look at on files with a recent Chapter 13 Bankruptcy discharge is that the mortgage loan borrower has made timely payments throughout the Chapter 13 Bankruptcy re-payment period and timely payments after the discharged date of their Chapter 13 Bankruptcy. Late payments after the discharged date of the Chapter 13 Bankruptcy will often be a deal killer. Those who had late payments after Chapter 13 Bankruptcy discharge need to correct and/or repair their credit and see if they can delete the derogatory credit item through negotiating with the creditor who are reporting them late or need to go through credit repair.

Verification Of Rent And Payment Shock

Verification Of Rent is mandatory for all manual underwriting mortgage loan applications. Verification Of Rent is only valid if the mortgage loan applicant can provide 12 months canceled check which is paid to the landlord and/or by providing 12 months bank statements showing the rental payments being wired to the landlord’s bank account. The rental payments needs to be on time and no late payments with the past 12 months rental history is allowed.  Home buyers who have been renting from a registered property management company can just complete a verification of rent form that is provided by the mortgage lender in lieu of the 12 months canceled checks and/or 12 months of bank statements. Reason for the importance of verification of rent on manual underwrites is due to payment shock . Mortgage lenders want to know that the mortgage loan borrower does not have payment shock where they go from renting an apartment to paying their new mortgage payment. For example, if the renter is paying $1,000 per month in rent and their new mortgage payment is $1,100, then the payment shock is only $100 which is no problem for them to handle the new mortgage payment. However, if the renter is paying $1,000 for rent and their new mortgage payment is $3,000, then there is a large payment shock where the new mortgage payment is three times the amount of housing payment the mortgage loan borrower is accustomed to paying for housing expenses.

Compensating Factors And Reserves

Mortgage underwriters underwriting manual underwrites will look for compensating factors . Compensating factors are positive factors that strengthen the mortgage loan applicant such as longevity on the job, additional income the borrower has but is not used to qualify for their loan such as part time income, over time income, bonus income, larger down payment, and reserves. Manual underwrites require three months of reserves. Reserves are one month of principal, interest, taxes, and insurance ( also referred as P.I.T.I. ). Reserves cannot be gifted and needs to be the mortgage loan borrower’s own funds.

If you have filed Chapter 13 Bankruptcy and are at least one year into the Chapter 13 Bankruptcy or have recently had your Chapter 13 Bankruptcy discharged and need a home loan after Chapter 13 Bankruptcy, please contact us at 262-716-8151 or email us at gcho@gustancho.com . We are available 7 days a week, evening, weekends, and holidays. We specialize in helping home buyers with prior bankruptcies, foreclosures, low credit scores, high debt to income ratios, and self employed borrowers.

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.

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