In this article, we will discuss and cover the VA Chapter 13 Guidelines on VA home mortgages. VA and FHA loans are the only two traditional home loan programs that allow borrowers to qualify for VA loans during a Chapter 13 bankruptcy repayment plan. It is no secret that our Veterans have put themselves through a lot. Many of our veterans struggle financially. This is an unfortunate stat and something that we all hope changes in the future. Sometimes our veterans are forced into filing for bankruptcy.
In this blog, we will detail how to obtain a home while currently in a chapter 13 bankruptcy. It is important to understand the difference between chapter 7 and chapter 13 bankruptcy. This blog will detail how to apply for a VA loan well currently in a chapter 13 bankruptcy and the changes for the count to hear of 2022. In this article, we will discuss and cover the VA Chapter 13 Guidelines on VA Home Mortgages.
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VA Loan Approval During and After Chapter 13 Bankruptcy
Gustan Cho Associates are experts in VA mortgage financing. We specialize in manually underwriting VA mortgages and have a very aggressive approach without LENDER OVERLAYS. This allows us to lend to more Veterans. We do not have a minimum credit score requirement. While most lenders will tell you that there is a minimum credit score to get a VA loan, that is a very common overlay, NOT a guideline.
Most banks require a 620 or even a 640 credit score but please understand, that requirement is specific to their bank, and not a HUD guideline. The U.S. Department of Housing and Urban Development (HUD) oversees VA mortgage guidelines. A VA mortgage is one of the most lenient mortgage products out there when it comes to qualifying. In the following paragraphs, we will go over some basics to pass a VA manual underwrite.
VA Manual Underwriting Guidelines
VA Manual Underwriting Guidelines are very lax. VA and FHA manual underwriting guidelines are almost identical. However, the mortgage underwriter has a lot of discretion on manual underwriting. Underwriter discretion is laxer on the VA manual versus FHA manual underwriting. A VA underwriter will strongly examine your past 12 months of payment history. As mentioned above, there is no minimum credit score requirement. But we are interested in your efforts to pay all creditors / financial obligations. An underwriter will go through your credit report with a fine-tooth comb and make sure there are no missed payments or non-medical collections in the previous 12 months.
If you have late payments in the past 12 months, you will need a very strong letter of explanation accompanied by verifiable proof of why you were late (such as hospitalization). With proper documentation, late payments will be viewed on a case-by-case basis and approved only at the underwriter’s discretion.
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How Manual Underwriting During Chapter 13 Bankruptcy Works on VA Loans
VERIFICATION OF RENT is normally not required on automated underwriting system (AUS) approved files. Verification of rent comes into play on manual underwriting. Commonly called a VOR, A verification to make sure you have paid your rent on time. An underwriter needs to make sure you pay your housing expenses. If you have a mortgage, we will know your payment history based on your credit report. If you are currently renting, an underwriter may go as far as 24 months to make sure you have not missed a housing/ rent payment.
Max VA DTI For VA Loan
The Veterans Administration has no maximum debt-to-income ratio caps on VA loans. While the guidelines surrounding maximum debt-to-income ratios are very vague on VA mortgages. We have yet to see an approval higher than 65%. Even on manually underwritten loans, it is possible to have a VA-backed mortgage with debt-to-income ratios as high as 64.99%. Of course, the underwriter is more likely to approve your file with lower debt-to-income ratios, but it is still a possibility. Every veteran must pass the residual income test. Residual income is based on the area you live in and the size of your family.
Get Approved For a VA Loan With High DTI
Bankruptcy Trustee Approval During Chapter 13 Repayment Plan
Many borrowers during Chapter 13 Bankruptcy often worry about getting trustee approval. No need to worry about trustee approval. Most trustees will approve a home mortgage during Chapter 13 Bankruptcy repayment. A veteran has a much better chance of receiving permission from the trustee to enter into a mortgage only due to the fact that a down payment is not required. A non-veteran will require a 3.5% down payment to enter into a mortgage with an FHA loan. Many times, the trustee will want to know how they were able to save the 3.5% well actively trying to pay their creditors back.
Down Payment and Closing Costs on VA Loans
In most home purchase transactions, there is the down payment and closing costs. Lenders offer 100% financing on VA loans. Most of our borrowers at Gustan Cho Associates do not have to come up with any closing costs. Closing costs can be covered with seller concessions and/or a lender credit. Coming with the down payment is not a problem for a veteran since 100% financing is available.
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Getting Trustee Approval on a VA Loan During Chapter 13 Bankruptcy
The trustee will still want to take a look at your overall financial picture and verify you will be able to afford your home. Typically, they want your mortgage payment to be similar to what you’re currently paying for rent. If your mortgage payment will rise considerably, the trustee will want to reevaluate your chapter 13 repayment plan. It is important to contact your chapter 13 attorney before submitting any documentation to the trustee. You do not want to shoot yourself in the foot and have a higher chapter 13 obligation.
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2022 VA Loan Limits
ATER NAVY VIETNAM VETERANS ACT OF 2019, loan limits were removed for VA borrowers. That is right, a Veteran can now use their 100% financing to buy a home above the conforming loan limit. Our investors are currently allowing loan amounts up to $3 million! As home values Across the nation continue to climb, our veterans will be able to purchase a home without a down payment. Previously a veteran would need a 25% down payment or the difference between the maximum loan amount and the purchase price. This is a huge change for our nation’s veterans. For more information on the loan limit cap removal, see our VA LOAN LIMIT BLOG.
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Do All Lenders Have The Same Chapter 13 Guidelines On VA Loans
From this blog, I hope you understand that we are incredibly aggressive with VA manual underwriting. We understand it more than most lending institutions. As you can see from our reviews, we are able to help numerous veterans within a chapter 13 bankruptcy purchase a home. Owning a home is important for every American and 100% VA mortgage financing is a huge benefit offered to those who serve and protect this great nation. Without our incredibly strong veterans, this country would not enjoy the freedoms that it does.
Getting Approved For a VA Loan With New Lender After Being Denied
Remember, 75% of our clients have been turned down by the current lender or are not getting the customer service they deserve. VA financing deals with a lot of lender overlays in the mortgage industry, so come to the experts who do not have any overlays. For any general mortgage questions, please call Mike Gracz at 630-659-7644. If you are a veteran stationed overseas and only have access to email, feel free to email mgracz@gustancho.com. We encourage you to check out our other blogs on VA mortgage financing and subscribe to our YouTube channel to stay up to date on the changing VA mortgage guidelines. We look forward to helping you and your family buy the home of your dreams.
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August 4, 2022 - 6 min read