Home Mortgage After Bankruptcy And Foreclosure Guidelines

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Home Mortgage After Bankruptcy And Foreclosure Guidelines

This BLOG On Home Mortgage After Bankruptcy And Foreclosure Guidelines Was UPDATED On September 5th, 2018

Advice In Qualifying For Home Mortgage After Bankruptcy:

Home Buyers can qualify for mortgage after bankruptcy.

  • Many folks are often under the belief that by having a bankruptcy on their record means the end of credit and more importantly, being able to become homeowners again
  • Bankruptcy is a federal law that gives consumers relief in the event they are drowning in debt and need a second chance in life
  • This includes becoming homeowners again
  • Many hard working Americans became victims of the 2008 subprime crisis and mortgage meltdown
  • Many lost their businesses, jobs, and careers
  • It has been proven and documented that the 2008 real estate meltdown was the longest lasting economic disaster in history besides the Great Depression
  • Countless of hard working Americans not only had to lose their homes but had to file bankruptcy

There are two types of personal bankruptcies: 

  1. Chapter 7 Bankruptcy
  2. Chapter 13 Bankruptcy

Difference Of Chapter 7 & Chapter 13 Bankruptcies

Chapter 7 Bankruptcy and Chapter 13 Bankruptcy

  • Chapter 7 Bankruptcy is often called total liquidation
  • It is geared toward those folks who have little to no assets and have many unsecured debts, collection accounts, wage garnishments, and judgments
  • Chapter 7 Bankruptcy allows a person get a totally fresh start in life where all of their debts are forgiven
  • However, not all creditors and/or debts can be discharged in a Chapter 7 Bankruptcy
  • Debts such as federal student loans, government loans, income taxes, child support, and judgments that involve fraud cannot be discharged in a Chapter 7 bankruptcy
  • Chapter 13 Bankruptcy is a bankruptcy program where folks with assets and income need to restructure their debts over a period of time
    • To file Chapter 13 bankruptcy, the petitioner needs to be either be employed or have his or her own business
    • A percentage of petitioner’s income is allocated towards paying back their creditors over a period of time
    • Chapter 13 repayment plans is normally for 60 months
    • After the repayment period is over, the overage debts due gets discharged

On this article, we will concentrate with Chapter 7 & 13 bankruptcy and how home buyers can qualify for mortgage after bankruptcy.

Do I Need To File Bankruptcy?

Home buyers can qualify for a home mortgage after bankruptcy. Consumers contemplating filing Chapter 7 Bankruptcy, there are many factors that should be taken into consideration.

  • Why bankruptcy? 
  • Maxed out credit cards? 
  • How much debts are owed? 
  • Underemployed and taken a drastic cut in income?
  • Do not see the light at the end of the tunnel to be able to pay debts? 
  • Behind on all of payments? 
  • Collection accounts? 
  • Collection agencies trying to garnish wages and freeze bank accounts? 
  • Judgments or multiple judgments?
  • Many folks are afraid of filing bankruptcy because they think that bankruptcy is the end of the world
  • They believe that they cannot qualify for home mortgage after bankruptcy
  • Home buyers can easily qualify for home mortgage after bankruptcy in as little as two years from the Chapter 7 Bankruptcy discharge date

Home Mortgage After Bankruptcy Guidelines On Collection Accounts

Consumers with older collection accounts that are dormant and collection agencies are leaving them alone and do not have any judgments, then maybe you might not need to file bankruptcy.

  • Most states have statute of limitations on collections
  • Some may be 5 years, depending on the state
  • Also, derogatory collection accounts will fall off credit report 7 years from the date of last activity
  • Many folks believe that they cannot get a mortgage with open collections
  • That is not correct
  • FHA does not require to pay outstanding collections and/or charged off accounts to qualify for FHA Loans

Qualifying For Home Loan With Outstanding Collection Accounts

Home Buyers can qualify for VA Loans and FHA Mortgages with outstanding collection accounts and the collection balance does not need to be paid off. Same with charged off accounts. Charged off accounts do not have to be satisfied to qualify for FHA and VA Home Loans:

  • However, if borrowers have a balance of higher than $2,000 old collection account, 5% of the unpaid balance will be used in calculating debt to income ratio
  • Borrowers do not have to pay the 5% of outstanding collections
  • It is just a hypothetical debt
  • The good news is mortgage lending guideline only applies to non-medical collection accounts
  • Does not apply to medical collection accounts
  • There are lenders that will requires to pay off outstanding collection accounts due to their own lender overlays
  • If this is the case, get another lender that will be able to help and do not have overlays on collections/charged off accounts and will just go off automated findings per the Automated Underwriting System

Debt Relief Through Bankruptcy

How much are owed to creditors?

  • I have talked to hundreds of folks who want to file bankruptcy just because they owe just a few credit card companies
  • Many have debts under $10,000
  • Consumers who fall behind on credit cards and owe less than $10,000, there are alternatives to bankruptcy
  • Many credit card companies will eventually just write off and report credit card debt as a charge off
  • They often do not pursue any more collection activities
  • Again, with charge offs, home buyers can still qualify for mortgage
  • Even with a collection accounts with outstanding balance
  • Consumers can also negotiate debt with the creditor
  • Or settle debt with them for pennies on the dollar at a later date
  • Depending on financial situation, if consumers who owe less than $10,000 to creditors, maybe filing bankruptcy may not be best option
  • Depending on which bankruptcy attorney, it may cost anywhere between over $1,000 or even more to file bankruptcy with an attorney

Dormant Collection Accounts And Charge Off Accounts

What if I have a bunch of old collection accounts with balances and charge offs?

  • Consumers with aged collection accounts, do not pay them if the intent is to qualify for mortgage
  • By making payment, it will reactivate the date of last activity and can plummet credit scores
  • Most collection accounts that are older than 3 years become dormant
  • Best bet is probably to let the statute of limitations run out
  • Depending on which state, most states have a 5 year statute of limitations on credit card debt and charge offs from the date of last activity
  • The credit bureaus needs to remove and delete derogatory information from credit report in 7 years from the date of last activity

How Judgments Affects Mortgage Process

What if I have judgments?

  • Judgments is a totally different issue
  • A judgment is normally good for ten years in most states
  • Judgments report on credit report for 7 years from the judgment issued date
  • A judgment creditor can renew the judgment for another ten years
  • If a judgment creditor finds out that consumer has assets and making good money, judgment creditor can try enforcing judgment
  • They can attach liens to assets, property, and can levy bank accounts as well as garnish wages
  • Collection accounts can turn into judgments as well
  • Those with multiple judgments and judgment creditors are trying to enforce their judgment, a bankruptcy may be potential option
  • Need to consult with a bankruptcy attorney to see if any alternatives to bankruptcy with multiple judgments

Cases Where Bankruptcy Cannot Help Consumers

Those with federal student loans, tax liens, judgments for child support and alimony, or judgments where it involves fraud, a bankruptcy will not help.

  • Any government loans, tax liens, government fines, government judgments, child support judgments, alimony judgments, judgments where it involves fraud, a Chapter 7 Bankruptcy will not help

Can I Get Home Mortgage After Bankruptcy?

The answer whether a home buyer can get a home mortgage after bankruptcy is ABSOLUTELY.

  • There is a 2 year waiting period after a bankruptcy discharge to qualify for VA and FHA insured mortgage loan with a 3.5% down payment
  • Home Buyers should start re-building credit immediately after bankruptcy discharge by getting a few secured credit cards
  • A bankruptcy will plummet credit scores by at least 150 points or more
  • Getting a few secured credit cards and re-establishing credit, credit scores will start soaring upwards every month
  • I have seen folks have 700 plus credit score after one year of filing bankruptcy
  • This was done by just getting 3 secured credit cards and utilizing them and never being late on any monthly payments
  • We will discuss more on re-establishing credit after a bankruptcy on later blogs

Mortgage During And After Chapter 13 Bankruptcy

Borrowers can qualify for VA and FHA Loans during Chapter 13 Bankruptcy after making 12 monthly payments to creditors with Trustee Approval. There is no waiting period after Chapter 13 Bankruptcy discharged date to qualify for FHA and VA Home Loans with The Gustan Cho Team at Loan Cabin Inc.

If you are interested in a home mortgage after bankruptcy, please contact Gustan Cho Associates at 262-716-8151 or email us at gcho@gustancho.com. We specialize in helping borrowers get home mortgage after bankruptcy with no lender overlays.

Gustan Cho

www.gustancho.com

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