Qualifying For FHA Loan During Chapter 13 Bankruptcy
This Article Is About Qualifying For FHA Loan During Chapter 13 Bankruptcy
FHA Loan During Chapter 13 Bankruptcy Repayment Plan.
Homebuyers and/or homeowners can qualify for an FHA loan during Chapter 13 Bankruptcy repayment plan after one year into the repayment period. Borrowers can qualify for either a home purchase and/or refinance an FHA loan during Chapter 13 bankruptcy after they have been making 12 timely payments to their creditors. Chapter 13 Bankruptcy does not need to be discharged. The bankruptcy trustee needs to approve the mortgage transaction.
Many borrowers are on pins and needles about their bankruptcy trustees signing off on their mortgage. Borrowers should not be worried about the bankruptcy trustee signing off on the mortgage and/or home purchase. Gustan Cho Associates have closed thousands of FHA loans during Chapter 13 Bankruptcy. We never ever had a bankruptcy trustee sign off on a home purchase FHA loan during Chapter 13 Bankruptcy repayment period. Trustees will sign off on a home purchase as long as the new mortgage is affordable and the borrower has the ability to repay.
Housing is considered a necessity by the courts. There is no waiting period after Chapter 13 Bankruptcy discharged date to qualify for an FHA loan. However, if the Chapter 13 Bankruptcy discharge has not been seasoned for at least 24 months, the file needs to be a manual underwrite. FHA and VA loans are the only two home mortgage program that allows manual underwriting. Conventional loans cannot be manually underwritten.
HUD Agency Mortgage Guidelines Versus Lender Overlays
There are two types of FHA Guidelines:
- HUD Guidelines on FHA Loans mandated by HUD 4000.1 FHA Handbook
- Mortgage Lender Overlays
The United States Housing and Urban Development (HUD) is the parent of the Federal Housing Administration (FHA). HUD is the governmental agency that creates and implements FHA Guidelines. All FHA lenders need to meet HUD Guidelines in order for the FHA Loans they originate and fund to be insured by HUD. HUD insures lenders against loss in the event the borrower defaults and the property goes into foreclosure. HUD will insure banks and lenders that follow HUD Guidelines on FHA Loans. However, banks and lenders can have mortgage requirements that are above and beyond those of minimum HUD Guidelines which are called lender overlays.
Just because a borrower meets minimum HUD Guidelines does not mean that a lender needs to honor it. Most lenders have FHA Lender Overlays. Gustan Cho Associates is a national mortgage company licensed in multiple states with no lender overlays on FHA Loans. Gustan Cho Associates has ZERO OVERLAYS on government and conventional loans.
Home Buyers Qualifying For FHA Loan During Chapter 13 Bankruptcy
Under FHA Guidelines On Chapter 13 Bankruptcy, Qualifying For FHA Loan During Chapter 13 Bankruptcy can be done during the repayment plan. Borrowers can qualify for FHA Loans during a Chapter 13 Bankruptcy Repayment Plan and do not need to wait until it is discharged. Also, under FHA Guidelines On Chapter Bankruptcy, borrowers can qualify for FHA Home Loans after a Chapter 13 Bankruptcy discharged date with no waiting period. Unfortunately, most lenders have lender overlays.
Most lenders will not accept borrowers to qualify for FHA Loans during Chapter 13 Bankruptcy. Most often mandate a two-year waiting period after Chapter 13 Bankruptcy discharged date as part of their overlays. Over 30% of our borrowers at Gustan Cho Associates are folks who are either in Chapter 13 Bankruptcy Repayment Plan and/or DOES NOT have a two-year seasoning after a Chapter 13 Bankruptcy discharged date. Home Buyers Qualifying For FHA Loan During Chapter 13 Bankruptcy can do so with a manual underwrite During Chapter 13 Repayment. They can also qualify after Chapter 13 Bankruptcy discharged date with NO WAITING PERIOD after a discharged date with us at Gustan Cho Associates Mortgage Group.
Types Of Bankruptcies And Qualifying For FHA Loan During And After Chapter 13 Bankruptcy
Home Buyers can qualify for FHA Loans after Chapter 7 and Chapter 13 Bankruptcies. However, there are FHA Requirements that borrowers need to qualify for qualification for FHA Loans after Chapter 7 and Chapter 13 Bankruptcy.
There are two types of bankruptcies for individuals who are drowning in debt and need relief from creditors and collections agencies.
- A Chapter 7 Bankruptcy
- Chapter 13 Bankruptcy
How Does Chapter 7 Bankruptcy Work?
A Chapter 7 Bankruptcy is called total liquidation where it benefits consumers who have very little to no assets and little to no income. There is an income requirement called the Chapter 7 Means Test that consumers need to meet in order to be eligible to file Chapter 7 Bankruptcy. The Chapter 7 Means Test is to keep high-wage earners from filing Chapter 7 Bankruptcy. If consumers have assets and are considering a Chapter 7 Bankruptcy, all of the assets will get liquidated. The proceeds will be distributed to the consumer’s creditors by the Bankruptcy Trustee.
Most consumers who file Chapter 7 Bankruptcy are those who have little to no assets and little to no income. All debts, with the exception of government debts, will get discharged with a Chapter 7 Bankruptcy. The consumer can get a fresh financial start where they will no longer owe anything to any creditors. Outstanding collection accounts no matter how much the outstanding unpaid balance is, as well as any judgments get wiped out with a Chapter 7 Bankruptcy discharge. Home Buyers can qualify for FHA Loans two years from the discharged date of a Chapter 7 Bankruptcy.
How Does Chapter 13 Bankruptcy Work?
With A Chapter 13 Bankruptcy, the consumer needs to have a source of income. Whether it is a job, business, or other documented source of income is required in order to qualify for a Chapter 13 Bankruptcy Repayment Plan.
- A Chapter 13 Bankruptcy is when the courts will appoint a Chapter 13 Bankruptcy Trustee
- The Chapter 13 Bankruptcy Trustee will go over the overall finances of the Chapter 13 Bankruptcy petitioner and allocate a certain percentage of the consumer’s income to pay the creditors
- The Chapter 13 Bankruptcy Trustee will propose a three to a five-year repayment plan of the creditors
- After that period is over, whatever the balance is remaining will be discharged and the consumer will be debt-free
- Both Chapter 7 Bankruptcies and Chapter 13 Bankruptcies are federal laws to help consumers who had financial problems due to extenuating circumstances
- Bankruptcy Laws were created to give relief to consumers to restart their lives and get a fresh start
- Those who want to purchase a home can qualify for an FHA Loan During Chapter 13 Bankruptcy one year into a Chapter 13 Bankruptcy Repayment Plan
Homebuyers can qualify for an FHA loan two years after a Chapter 7 Bankruptcy discharged date.
Requirements For FHA Loan During Chapter 13 Bankruptcy Repayment Plan
Those who filed a Chapter 13 Bankruptcy and have been into a repayment plan for at least a year can qualify for an FHA Loan.
- Borrowers need to have been one year into their repayment plan with no late payments
- Home Buyers will need the approval of their Chapter 13 Bankruptcy Trustee
- Getting Trustee Approval is normally never an issue
Most Chapter 13 Bankruptcy Trustees encourage homeownership and do not have any problems and/or issues signing off on a home purchase with an FHA Loan during Chapter 13 Bankruptcy.
- FHA Lenders will require at least 12 months of timely payments without any late payments in the past 12 months
- All FHA Loan applications for borrowers applying for FHA Loans During Chapter 13 Bankruptcy Repayment Plans are manual underwrites
- On manual underwrites rental verification is required
- Exceptions on verification of rent (VOR) can be made if home buyers are living with family to save money for the down payment
All manual underwriting, compensating factors are positive and will help borrowers.
Importance Of Compensating Factors On Manual Underwriting FHA Loans
Examples of compensating factors are the following:
- Larger down payment
- Longevity on the job or second job that is not used as qualified income and borrower had it for at least a year
- Other income that is not used as qualifying income
- As standard automated approved FHA Loans, down payment requirements is 3.5% down payment on a home purchase
Minimum credit scores to qualify for FHA Loan During Chapter 13 Bankruptcy Repayment Plan is 580 FICO credit scores.
Qualifying For FHA Loan After Chapter 7 Bankruptcy
Home Buyers who cannot qualify for an FHA Loan after a Chapter 7 Bankruptcy until they have passed a mandatory two-year waiting period after a Chapter 7 Bankruptcy discharged date. Lenders will want to see re-established credit after the Chapter 7 Bankruptcy discharged date. No late payments after Chapter 7 bankruptcy. The majority of lenders will not accept any borrowers who had any late payments after a Chapter 7 Bankruptcy. They also do not accept any borrowers who had late payments during and/or after a Chapter 13 Bankruptcy.
There is no waiting period to qualify for an FHA Loan after a Chapter 13 Bankruptcy discharged date. However, most lenders will have a two-year waiting period after a Chapter 13 Bankruptcy discharged date as part of their overlays. Under no circumstances be late on any debt payments after a bankruptcy and/or foreclosure. Again, any late payments after a bankruptcy and/or foreclosure may ruin your chances of qualifying for FHA Loans as well as other loan programs.
Qualifying For An FHA Loan With A Lender With No Lender Overlays
Borrowers who have any late payments after a bankruptcy and/or foreclosure and are told that you do not qualify for an FHA Loan. However, one or two late payments after bankruptcy and/or foreclosure are not a deal killer. Gustan Cho Associates is a national mortgage company licensed in multiple states with no lender overlays on government and conventional loans.
Home Buyers who need a lender with no lender overlays on FHA Loan during Chapter 13 Bankruptcy and/or after Chapter 13 Bankruptcy discharge, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] Our team of licensed loan officers will do everything possible to pre-approve our borrowers. We are confident not just to close on your home loan but close it on time. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
This BLOG On Qualifying For FHA Loan During Chapter 13 Bankruptcy Was UPDATED On August 6th, 2021 with the latest updated HUD Agency Mortgage Guidelines