This BLOG On HUD Chapter 13 Manual Guidelines During Bankruptcy Repayment Period Was PUBLISHED On December 16th, 2019
Per HUD Chapter 13 Manual Guidelines, borrowers can qualify for FHA Loans during Chapter 13 Bankruptcy Repayment Period.
- Chapter 13 Bankruptcy does not have to be discharged to qualify for FHA Loans
- Although HUD Chapter 13 Manual Guidelines allow borrowers to qualify for FHA Loans during the repayment of their Chapter 13 Bankruptcy, most mortgage companies do not allow this
- All lenders need to meet minimum HUD Guidelines per HUD 4000.1 FHA Handbook
- However, lenders can have higher standards on FHA Loans called lender overlays
- Most lenders have lender overlays on government and conventional loans
- Gustan Cho Associates Mortgage Group is one of the very few lenders that have no lender overlays on government and conventional loans
- We just follow the minimum HUD Mortgage Guidelines
- We just follow the automated findings of the automated underwriting system (AUS)
- We have no other overlays
In this article, we will cover and discuss HUD Chapter 13 Manual Guidelines.
HUD Chapter 13 Manual Guidelines Versus Other Loan Programs
FHA and VA Loans are the only loan programs that allow borrower in an active Chapter 13 Bankruptcy Repayment plan to qualify for home loans.
- Both VA and HUD Chapter 13 Manual Guidelines are almost the same
- Both VA and HUD Chapter 13 Manual Guidelines allow borrowers to qualify for VA and/or FHA Loans during Chapter 13 Repayment Plan
- Trustee Approval is required
- Most Trustee will sign off on a home loan during Chapter 13 Bankruptcy Repayment Plan
- This only holds true as long as the borrower is able to afford it
- There are no waiting period requirements to qualify for FHA and/or VA Loans after Chapter 13 Bankruptcy discharged date
Any Chapter 13 Bankruptcy discharge that has not been seasoned for at least 24 months, the VA and/or FHA file needs to be manually underwritten. Manual underwriting guidelines apply.
VA-FHA Manual Underwriting Guidelines
Automated findings of refer/eligible per AUS can be downgraded to manual underwriting on VA and FHA Loans.
Here are the manual underwriting guidelines:
- No late payments in the past 12 months
- Verification of rent required on all manual underwriting
- Borrowers without verification of rent and living with family to save money for the down payment and closing costs on the home purchase can complete a living-with family rent-free letter
- This letter is provided by the lender
- If the borrower is in an active Chapter 13 Bankruptcy Repayment Plan, the Bankruptcy Trustee need to approve the home purchase transaction
- There is no waiting period after Chapter 13 Bankruptcy discharged date to qualify for VA and/or FHA Loans
- One or two late payments in the past 24 months is not always a deal killer with extenuating circumstances
- Manual Underwriting requires one month’s of reserves
- Reserves are one month’s principal, interest, taxes, and insurance
- Reserves need to be borrowers own funds and cannot be gifted
Debt To Income Ratio caps is dependent on the amount of compensating factors.
Debt To Income Ratio Versus Compensating Factors
Debt to income ratio caps is limited on manual underwriting.
Here is the maximum debt to income ratio requirements on manual underwrites:
- 31% front end and 43% back end with no compensating factors
- 37% front end and 47% back end with two compensating factors
- 40% front end and 50% back end with two compensating factors
Gustan Cho Associates allows up to 54% debt to income ratio on manual underwriting on VA Loans.
What Are Compensating Factors
Compensating Factors are positive factors considered by mortgage lenders.
Here are examples of compensating factors:
- 3 months of reserves
- Qualified income such as part-time income with at least one-year seasoning but not used in qualifying for the loan
- Larger down payment on a home purchase
- Habit and history of saving money
- Payment shock of less than 5% from renting to the new mortgage payment determined by rental verification
For more information on the contents of this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org.