HUD Chapter 13 Mortgage Guidelines For FHA Loans On Purchases
This BLOG On HUD Chapter 13 Mortgage Guidelines For FHA Loans On Purchases Was PUBLISHED On May 28th, 2020
Most Americans who file Chapter 13 bankruptcy are in a hard chapter of their life.
- But there is still hope to maintain current mortgage or buying the home of their dreams
- Per FHA federal guidelines, homebuyers may enter into an FHA mortgage after 12 on-time payments to Chapter 13 Bankruptcy Trustee
- Feel like you have been told this before?
- And then tried to obtain a mortgage only to be turned down?
- This is very common
- The reason home buyers were turned down is due to lender overlays
- Majority of lenders in 2018 do not originate loans for clients who are currently in a Chapter 13 Bankruptcy
- The good news the experts at Gustan Cho Associates Mortgage Group are here to help!
- We are direct lenders with no mortgage overlays on government and conventional loans and just go off HUD Chapter 13 Mortgage Guidelines
In this article, we will discuss and cover HUD Chapter 13 Mortgage Guidelines For FHA Loans On Purchases.
What Are Requirements While In Chapter 13 Bankruptcy And HUD Chapter 13 Mortgage Guidelines
As stated above borrowers can become eligible to enter an FHA Mortgage once 12 On-Time payments have lapsed. Per HUD CHAPTER 13 Mortgage Guidelines, all borrowers in a Chapter 13 Bankruptcy or who just had a Chapter 13 Bankruptcy discharged and the discharged date is not seasoned for at least two years, it needs to be an FHA Manual Underwrite. FHA Manual Underwriting Guidelines needs to be adhered to:
There are a few more general rules of thumb to follow:
- 12 on-time payments to bankruptcy and ALL OTHER BILLS
- Clean rental history for at least the past 12 months
- Needs to be verifiable from Management company or canceled checks and/or bank statements
- The credit score of at least 580
- 3.5% down payment
One month reserves 1-2 unit properties:
- One month of reserve is equal to one-month PITI (principal, interest. Taxes, and insurance of TOTAL MORTGAGE PAYMENT)
- Note 3-4 unit properties require 3 months reserves (PITI)
Establishing credit after the bankruptcy such as the following:
- a secured credit card helps but is not required
Pass manual underwriting debt to income ratios:
- 500‐579 (and No score) credit score max DTI is 31/43
- 580 and above max DTI is 31/43 with no compensating factors
- 580 and above max DTI is 37/47 with one compensating factor
- 580 and above max DTI is 40/40 with no discretionary debt
- 580 and above max DTI is 40/50 with two compensating factors
Borrowers must also get permission to enter a new mortgage form Chapter 13 Bankruptcy Trustee. Mortgage Borrowers who have shown financial stability since entering their chapter 13 bankruptcy, the trustee is more than likely to grant home buyers permission. It is important that borrowers do not get payment shock. Payment shock is described with home buyers overall monthly housing payment increases substantially. Per HUD Chapter 13 Bankruptcy Mortgage Guidelines, a payment shock of less than 5% is considered a strong compensating factor.
Can Homeowners Refinance While In Chapter 13 Bankruptcy?
The short answer is YES they can. Homeowners who are looking for an FHA cash-out refinance, they must pay the trustee off in full with the transaction.
- The trustee more times than not will grant homeowners permission to enter into the cash out loan assuming there is enough equity to complete the transaction
- This usually will discharge chapter 13 bankruptcy
- It allows homeowners to continue to get back on their feet
- Homeowners can also re-finance their current mortgage with a rate and term transaction
- There must be enough savings to pass the net tangible benefit test with the new FHA Refinance Loan
- The loan must make sense after borrowers factor in closing costs for the trustee to sign off on this
Reach out to the FHA mortgage bankruptcy experts at Gustan Cho Associates Mortgage Group. We are available seven days a week at 262-716-8151 or text us for a faster response. Or email us at GCA Mortgage Group at email@example.com. The experts at Gustan Cho Associates Mortgage Group also have a full portfolio of Non-QM loans available for borrowers who find themselves in tough situations. Even one day out of foreclosure, short sale, deed in lieu, there are loan programs available. Start your mortgage application today and let the experts find the best loan product for you. Over 75% of our borrowers are folks who could not qualify for mortgages at other lenders due to their lender overlays. Gustan Cho Associates has zero mortgage overlays on government and conventional loans.