Can I Qualify For FHA Loan During Chapter 13 Bankruptcy?

This BLOG On Qualifying For FHA Loan During Chapter 13 Bankruptcy Was UPDATED On December 20th, 2017

FHA Loan During Chapter 13 Bankruptcy Repayment Plan

There are two types of FHA Guidelines:

  1. FHA Guidelines mandated by HUD 4000.1 FHA Handbook
  2. 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 approved mortgage lenders needs to meet FHA Guidelines in order for the FHA Loans they originate and fund to be insured by FHA in the event the borrower defaults and the property goes into foreclosure
  • FHA will insure banks and lenders that follow FHA Guidelines
  • However, banks and mortgage lenders can have mortgage requirements that are above and beyond those of minimum FHA Guidelines which are called mortgage lender overlays
  • Just because a borrower meets minimum HUD Guidelines does not mean that a lender need to honor it
  • Most mortgage lenders have FHA Lender Overlays
  • The Gustan Cho Team at USA Mortgage are direct lenders with no mortgage lender overlays on FHA Loans
  • USA Mortgage has ZERO OVERLAYS on government and conventional loans

Under FHA Guidelines On Chapter 13 Bankruptcy, mortgage borrowers can qualify for FHA Loans during a Chapter 13 Bankruptcy Repayment Plan.

  • Also, under FHA Guidelines On Chapter Bankruptcy, mortgage borrowers can qualify for FHA Home Loans after a Chapter 13 Bankruptcy discharged date with no waiting period
  • Unfortunately, most mortgage lenders have lender overlays where borrowers cannot qualify for FHA Loans during Chapter 13 Bankruptcy and they mandate a two year waiting period after Chapter 13 Bankruptcy discharged date
  • Over 30% of our borrowers at The Gustan Cho Team at USA Mortgage are folks who are either in a Chapter 13 Bankruptcy Repayment Plan and/or DOES NOT have a two year seasoning after a Chapter 13 Bankruptcy discharged date

Home Buyers can qualify for FHA Loans During Chapter 13 Bankruptcy and after Chapter 13 Bankruptcy discharged date with NO WAITING PERIOD after discharged date.

Types Of Bankruptcies And Qualifying For FHA Loans 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.

  1. A Chapter 7 Bankruptcy
  2. 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 has 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 gets 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 five year repayment plan of the creditors
  • Qfter 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 was 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 a FHA Loan During Chapter 13 Bankruptcy one year into a Chapter 13 Bankruptcy Repayment Plan
  • Home buyers can qualify for a FHA Loan two years after a Chapter 7 Bankruptcy discharge 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 a FHA Loan.

  • Borrowers needs to have been one year into their repayment plan with no late payments
  • Home Buyers will need approval of their Chapter 13 Bankruptcy Trustee. Getting Trustee Approval is normally never an issue

Most Chapter 13 Bankruptcy Trustees encourage home ownership and does not have any problems and/or issues signing off on a home purchase with a 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 down payment
  • All manual underwriting,  compensating factors is a positive and will help borrowers
  • Examples of compensating factors are the following:
    • Larger down payment
    • Reserves
    • 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 a FHA Loan after a Chapter 7 Bankruptcy until they have passed a mandatory two year waiting period after a Chapter 7 Bankruptcy discharged date.

  • Mortgage lenders will want to see re-established credit after the Chapter 7 Bankruptcy discharged date
  • No late payments after Chapter 7 bankruptcy
  • Majority of mortgage lenders will not accept any mortgage borrowers who had any late payments after a Chapter 7 Bankruptcy or any borrowers who had late payments during and/or after a Chapter 13 Bankruptcy
  • There is no waiting period to qualify for a FHA Loan after a Chapter 13 Bankruptcy discharged date
  • However, most FHA mortgage 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 FHA Loans as well as other loan programs

Mortgage Borrowers who have any late payments after a bankruptcy and/or foreclosure and are told that you do not qualify for a FHA Loan. However, one or two late payments after bankruptcy and/or foreclosure is not a deal killer. The Gustan Cho Team at USA Mortgage are direct lenders with no overlays on government and conventional loans. Home Buyers who need a direct lender with no overlays on FHA Loan during Chapter 13 Bankruptcy and/or after Chapter 13 Bankruptcy discharge, please contact us at The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com.  Me and my 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 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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