VA Loan During Chapter 13 Bankruptcy (1)

VA Loan During Chapter 13 Bankruptcy Mortgage Guidelines

Gustan Cho Associates are mortgage brokers licensed in 48 states

This blog will discuss qualifying for a VA loan during Chapter 13 Bankruptcy mortgage guidelines. Many of our clients at Gustan Cho Associates are told they do not qualify for a VA loan during Chapter 13 Bankruptcy. Many homebuyers are told they can’t qualify for a VA loan during Chapter 13 Bankruptcy.  You need to have been in Chapter 13 for one year with 12 timely payments and get trustee approval, explains John Strange, a senior loan officer at Gustan Cho Associates.

Borrowers can qualify for a VA loan during Chapter 13 Bankruptcy repayment plan one year after filing for Chapter 13.

You need to have made 12 timely payments with no late payments. Trustee approval is required. It needs to be manual underwriting. They are told by lenders they can only qualify for VA loans two years after Chapter 13 Bankruptcy discharge. This is not true. Homebuyers can qualify for a VA loan during Chapter 13 Bankruptcy. Chapter 13 Bankruptcy does not have to be discharged.

How Can I Get Approved For a VA Loan During Chapter 13 Bankruptcy Repayment Plan?

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Homebuyers are eligible to qualify for a VA loan during Chapter 13 Bankruptcy repayment plan after making 12 timely payments while in the plan. The Chapter 13 Bankruptcy does not have to get discharged. You need to wait 12 months after filing Chapter 13 Bankruptcy to be eligible for a VA loan during Chapter 13 Bankruptcy. In this article, we will discuss the following:

  • Qualifying for a VA loan during Chapter 13 Bankruptcy.
  • Chapter 13 Bankruptcy does not have to be discharged.
  • Getting Trustee approval.
  • VA agency guidelines versus lender overlays.

There is no waiting period requirement after the Chapter 13 Bankruptcy discharge date. Gustan Cho Associates are mortgage brokers licensed in 48 states with no lender overlays on VA loans.

Get a custom VA mortgage quote now. 

Do Lenders Have Different Requirements on VA Loans?

VA loans are the best home mortgage program in the nation. VA loans are only available to active or retired members of the U.S. Armed Services with a valid VA certificate of eligibility (COE).

The Veterans Administration is no a lender of VA loans. The Veterans Administration is a large federal government agency that is in charge of administering VA loans. The VA is the agency that creates, and administers VA loans. The role of the Veterans Administration is to insure VA loans to private lenders where homeowners default on their VA loans.

Lenders offer 100% financing with no down payment required at lower rates than conventional loans due to the government guarantee, There is no mandatory mortgage insurance on VA loans.

Do You Meet The VA Loan During Chapter 13 Bankruptcy Guidelines?

What Is The VA Funding Fee?

The VA Funding Fee is a one-time cost that can be rolled into the balance of the VA loan. The VA Funding fee is similar to the upfront FHA mortgage insurance premium. The VA funding fee is a fund that the VA uses to insure VA loans that default. The Veterans Administration has much more lenient agency mortgage guidelines than other loan programs.

Veterans are required a one-time VA funding fee if they use a VA loan. The purpose of the VA funding is to help fund the VA government guarantee VA loan insurance program to fund VA loans that default.

Most veterans who buy or refinance a home with a VA loan must pay a one-time funding fee. This fee helps protect the VA loan program when mortgages default. Veteran homebuyers with a Certificate of Eligibility can qualify for VA Loan During Chapter 13 Bankruptcy, one year into the Chapter 13 Repayment Plan. To qualify for VA Loan During Chapter 13 Bankruptcy, the borrower must have the approval of the Chapter 13 Bankruptcy Trustee, which is normally not a problem.

Learn More About VA Loans while in a Chapter 13 Bankruptcy 

Types of Bankruptcies and VA Loans

There are two types of Bankruptcies available to consumers:

  • Chapter 7 Bankruptcy
  • Chapter 13 Bankruptcy

A Chapter 7 Bankruptcy is where a consumer has little to no income and is drowning in debt. Most debts can be discharged under a Chapter 7 Bankruptcy. It takes 90 days to have the consumer discharged with a Chapter 7 Bankruptcy.

To qualify for a VA loan after Chapter 7 Bankruptcy, there is a two year waiting period after discharge date. You need to wait one year after filing Chapter 13 bankruptcy to become eligible for a VA loan during Chapter 13 Bankruptcy in a repayment plan. You need to have made twelve timely payments. There is no waiting period after Chapter 13 Bankruptcy discharge date to qualify for a VA loan.

There is a two-year waiting period to qualify for a VA Loan after the discharge date of a Chapter 7 Bankruptcy. A Veteran borrower can qualify for VA Loan one year into a Chapter 13 Bankruptcy repayment plan. The borrower must show proof of on-time payments to their creditors for the past 12 months. There is no waiting period to qualify for a VA Loan after a Chapter 13 Bankruptcy discharge date.

VA Loan During Chapter 13

No Lender Overlays on VA Loan During Chapter 13 Bankruptcy Guidelines

VA Loans While on Chapter 13 Bankruptcy Repayment Plan

This section will review the general requirements for VA Qualifying For VA Loan During Chapter 13 Bankruptcy. The borrower needs a valid COE,  Certificate of Eligibility. Veteran Borrower needs to have made timely payments with no 30-day late payments for the past 12 months to all creditors named in the Chapter 13 Bankruptcy.

Many homebuyers in an active Chapter 13 Bankruptcy repayment plan think they will have a hard time getting the bankruptcy trustee to sign off on a mortgage approval for them. This is not the case. Gustan Cho Associates never had a bankruptcy trustee sign off on a home mortgage during Chapter 13 Bankruptcy repayment plan.

The borrower needs to get approval from their assigned Chapter 13 Bankruptcy Trustee. The borrower needs a 580 Credit Score to qualify with Gustan Cho Associates. We do not have any lender overlays on VA loans. The team at Gustan Cho Associates are experts in helping borrowers in an active Chapter 13 Bankruptcy repayment plan.

Rental Verification Requirements on VA Manual Underwriting

Verification of Rent is only valid if the renter can provide 12 months of canceled checks paid to their landlord. Or bank statements reflecting outgoing transfers of the same amount of their rental payments to their landlord’s bank account. If the renter rents from a registered property management company, then the lender provides a VOR Form to the property manager.

Verification of Rent is required on all manual underwrites on VA loans. Verification of rent is only valid if the borrower can provide 12 months of canceled checks along with a Rental Verification Form completed, dated, and signed by the landlord. The landlord with provide the verification of rent form that need to get completed and signed by the property owner.

The property management manager can complete it and can be used in place of the 12 monthly checks or 12 months of bank statements. Gustan Cho Associates can waive the verification of rent for borrowers who have been living rent-free with family to save money for their home purchase and closing costs.

VA Loan Requirements For 2023

VA loans are the best mortgage loan program available to mortgage borrowers. However, not everyone qualifies for VA loans. Here are the qualification requirements for VA loans:

Mortgage Insurance Premium on VA Loans

One of the greatest benefits of VA loans is there is no mortgage insurance premium on VA loans. There is a one-time VA Funding Fee. The VA funding fee can be rolled into the loan balance of the VA loan.

VA loans does not have mortgage insurance premium. Instead, the Veterans Administration has a one-time VA funding fee that is mandatory on all purchase and refinance VA loans. There are instances when the VA exempts VA funding fee to disabled veterans.

The mortgage insurance premium is not required on VA loans. One-time VA upfront funding fee is reduced for veterans with a disability. There is no maximum loan limit on VA loans.

VA Credit Score Requirements on VA Loans

VA does not have a credit score requirement. It is up to individual lenders to have lender overlays on credit scores. We recommend a minimum of 580 Credit Score on VA Loans for the best chances of getting an approve/eligible per Automated Underwriting System.

The Veterans Administration has no minimum credit score requirements on VA loans. The minimum credit score requirements mandated by individual lenders which are overlays. Lender overlays are the lender’s own credit score requirements and not the credit score required by the Veterans Administration.

However, Gustan Cho Associates have closed VA loans with credit scores in the low 500 FICO with an approve/eligible per AUS.

Mortgage Rates Versus Credit Scores Pricing on VA Loans

Gustan Cho Associates has no VA Lender Overlays. VA loans have very low mortgage rates for borrowers with higher credit scores. Mortgage rates on high credit score borrowers are lower than conventional rates.

A prior bankruptcy or foreclosure has no pricing adjustments to mortgage rates on VA loans. A manual underwrite can have a slight loan-level pricing adjustment but not much of a pricing hit.

VA Lenders can offer the lowest mortgage rates on VA loans even with 100% financing. VA loans are lower for higher credit score borrowers because the United States Department of Veteran Affairs guarantees the VA loan.

VA Waiting Period After Chapter 13 Bankruptcy Discharge Date

Here are the requirements to qualify for VA Loan During Chapter 13 Bankruptcy Repayment Period And After the Chapter 13 Bankruptcy Discharge Date:

  • A Veteran borrower with a COE can qualify for a VA loan during Chapter 13 Bankruptcy.
  • Need to be one year into the Chapter 13 Bankruptcy repayment plan with the approval of the Chapter 13 Bankruptcy trustee and verification of rent.
  • Timely payments in the past 12 months.
  • We recommend a minimum 580 Credit Score and have no overlays on VA loans.

We do not have any debt-to-income ratio requirement on VA loans. Just go off Automated Underwriting System approval. As long as the Veteran borrower has plenty of VA Residual Income, we can get an approve/eligible per AUS FINDINGS with debt-to-income ratios as high as 60% DTI.

Understanding Overlays versus VA Agency Guidelines on VA Loans

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Some lenders disqualify Veteran borrowers for VA loans during Chapter 13 Bankruptcy repayment period, not BECAUSE OF VA GUIDELINES, BUT because of their lender overlays on VA loans. Not all lenders have the same VA guidelines on VA loans. Just because one lender denies a borrower does not mean the borrower does not qualify at a different lender, says Alex Carlucci:

Gustan Cho Associates has no lender overlays on VA loans. We just go off the general VA agency guidelines administered by the Veterans Administration and do not add any additional mortgage requirements on VA loans.

Lender Overlays are the individual lender’s lending requirements on top of the VA Guidelines. There is no waiting period to qualify for a VA Loan after a Chapter 13 Bankruptcy discharge date. Each mortgage lender can have higher lending standards than those of the U.S. Department of Veteran Affairs, which you call lender overlays.

VA Debt-to-Income Ratio Mortgage Guidelines

VA loans do not have a maximum debt-to-income ratio cap on VA loans. As long as the borrower has strong residual income and has made timely payments in the past 12 months, the borrower should be able to get an approve/eligible per AUS. One of the frequently asked questions at Gustan Cho Associates is why is it many lenders with the name Veterans attached to their name require a 620 credit score or higher.

Gustan Cho Associates will exempt verification of rent if the borrower has been living rent free with family to save money for a home purchase. A living-rent free form provided by the lender needs to be completed, dated, and signed by the person who owns the property.

Lenders with the name Veterans as part of their name have absolutely no affiliation to the Veterans Administration. VA has no minimum credit score requirements. Gustan Cho Associates has countless borrowers with credit scores down to 500 FICO and a debt-to-income ratio higher than 60% DTI. Most lenders have mortgage overlays on the debt-to-income ratio on VA loans. Gustan Cho Associates has zero lender overlays on VA loans.

VA Chapter 13 Bankruptcy Guidelines

Using VA Loans During Chapter 13 Bankruptcy to purchase a home without bankruptcy discharge. VA and FHA loans are the only two home mortgage programs for homebuyers during the Chapter 13 Bankruptcy repayment plan. There are two types of consumer bankruptcy. Chapter 7 and Chapter 13 Bankruptcy. Chapter 7 Bankruptcy is the bankruptcy of choice. Chapter 7 Bankruptcy is the bankruptcy of choice because it is easy, fast, cheap, and only takes 90 days to discharge the bankruptcy from the filing date.

Chapter 7 Bankruptcy is the better option if consumers had a choice to file bankruptcy. Chapter 7 Bankruptcy is normally discharged after 90 days of filing. Once discharged, the two  year waiting period starts to qualify for a VA loan. Chapter 13  bankruptcy is a repayment plan. Most Chapter 13 Bankruptcy repayment terms is five years from the date of filing.

Some parameters come along with Chapter 7 Bankruptcy. The consumer needs to meet the Chapter 7 Bankruptcy Means Test. What this means is income caps determine whether or not you qualify for Chapter 7 Bankruptcy. You can only have a certain amount of assets. Any assets over the exempt amount must be liquidated, and payments go to creditors. Borrowers can qualify for an FHA or VA loan two years after the discharge date of Chapter 7 Bankruptcy.

Chapter 7 Versus Chapter 13 Mortgage Guidelines On VA Loans

Chapter 7 Bankruptcy best benefits consumers without jobs or assets. Chapter 7 Bankruptcy is a great tool for consumers to restart their financial life debt-free. Chapter 13 Bankruptcy is a debt restructuring program administered by the courts.

Homeowners with equity in their homes are eligible to do a Chapter 13 Bankruptcy early buyout with a cash-out refinance buyout. What an FHA Chapter 13 Bankruptcy Cash-Out Refinance Buyout means you tap into your home equity to get cash out to pay the outstanding debts of you Chapter 13 Bankruptcy early. This is very common today due to the skyrocketing home values.

The bankruptcy trustee will allocate a certain percentage of the consumer’s income. That certain percentage will be set aside and used to pay creditors.

How Long Is Chapter 13 Bankruptcy Repayment Plan

Most Chapter 13 Bankruptcy repayment plans are for 60 months. Creditors get paid a discounted amount every month for 60 months. After 60 months, the courts discharge the unpaid balance, and the consumer is now debt-free.

Consumers can have a three to a five year repayment plan with a Chapter 13 Bankruptcy. Most people have a five year repayment plan. However, during the Chapter 13 repayment plan, you can purchase a home with trustee approval.

Mortgage borrowers can qualify for an FHA or VA loan during the Chapter 13 Bankruptcy repayment plan after being in the plan for 12 months. Most Chapter 13 Bankruptcy repayment plans are for five years. During the five years, you need the trustee’s approval with any large purchases you plan on making, such as buying a new car or purchasing other high-ticket items.

When Can I Qualify For VA Loans After Filing Chapter 13 Bankruptcy?

12 months of timely payments need to be paid to the trustee. The loan needs to be manually underwritten. Manual underwriting guidelines apply. Borrowers cannot have any late payments. Need proof of 12 timely payments. Chapter 13 Bankruptcy does not have to be discharged. Gustan Cho Associates are experts in helping homebuyers qualify for an FHA and VA loan during Chapter 13 Bankruptcy.

Homebuyers can buy a home during Chapter 13 Bankruptcy repayment plan without the Chapter 13 Bankruptcy being discharged. The only two mortgage loan program that allow for a mortgage during Chapter 13 Bankruptcy are FHA and VA loans. Both FHA and VA loans have similar lending guidelines on Chapter 13 Bankruptcy repayment plan.

There is no waiting period after the Chapter 13 Bankruptcy discharge date. However, any Chapter 13 Bankruptcy that is not seasoned two years after the discharged date needs to be manually underwritten. In the following paragraphs, we will discuss and cover Using VA Loans During Chapter 13 Bankruptcy to purchase a home.

Using VA Loans During Chapter 13 Bankruptcy Versus After Discharged Date

The Department of Veterans Affairs (VA) is the federal agency that administers VA loans. The VA is not a lender. The VA has nothing to do with the origination and funding of VA loans.

There is no waiting period requirements to qualify for VA loans after Chapter 13 Bankruptcy discharge date. However, if the Chapter 13 Bankruptcy is not seasoned for two years, the file needs to be a manual underwrite.

Private lenders offer 100% financing with no mortgage insurance at competitive mortgage rates on VA loans due to the government guarantee. If borrowers default or foreclose on VA loans, the VA will insure and partially guarantee the losses sustained by the lender.

Are VA Loans Easier To Qualify Than Other Mortgage Loan Programs?

The VA has created very lenient agency mortgage guidelines on VA loans. VA and FHA loans are the only two home mortgage programs that permit borrowers in an active Chapter 13 Bankruptcy repayment plan to qualify for a mortgage.

VA loans has the most lenient mortgage guidelines than other home mortgage program. However, VA loans are very strict when it comes to late payments in the past 12 months. You normally cannot have late payments in the past 12 months and be eligible to qualify for VA loans. The automated underwriting system will not render an automated underwriting system approval on VA loans with late payments in the past 12 months.

There is not much difference in using VA loans during Chapter 13 Bankruptcy versus after the final discharge of the bankruptcy.

Bankruptcy Trustee Approval During Chapter 13 Repayment Plan

The main difference with the mortgage process during Chapter 13 Bankruptcy is the borrower needs Trustee approval and needs to be manually underwritten.

The team at Gustan Cho Associates are experts in helping borrowers with credit scores down to 500 FICO get approvals on VA loans. We are experts in manual underwriting on VA loans. Gustan Cho Associates has no lender overlays on VA loans.

The team at Gustan Cho Associates are experts in helping borrowers qualify for a mortgage during a Chapter 13 Bankruptcy repayment plan. We have never had a trustee deny a home mortgage to purchase a new home during the Chapter 13 repayment plan.

VA Loan During Chapter 13 Bankruptcy Trustee Approval

There is no need to stress about the trustee not signing off on your new home purchase request during the Chapter 13 Bankruptcy repayment plan. There is no waiting period after the Chapter 13 Bankruptcy discharge date.

All VA loans during Chapter 13 Bankruptcy repayment plans are manual underwrites. There is not much difference between manual underwrites versus approve/eligible per automated underwriting system on VA loans with the exception of lower front-end and back-end debt-to-income ratios on manual underwrites.

However, any Chapter 13 Bankruptcy discharge that has not been seasoned for two years must be manually underwritten. VA and FHA loans are the only two home mortgage programs allowing manual underwriting. Manual underwriting guidelines apply.

VA Agency Guidelines Versus Lender Overlays

Do all lenders have the same lending guidelines on VA home mortgages? NOT. All lenders need to meet the minimum lending guidelines by the Department of Veterans Affairs. Lenders can have their own lending requirements that are above and higher than the minimum lending guidelines of the VA, called lender overlays.

Gustan Cho Associates are experts in qualifying and closing borrowers with credit scores down to 500 FICO on VA loans. We recently closed VA loans for a borrower with a 523 credit score with a debt-to-income ratio over 60% on a manual underwrite. The borrower had plenty of residual income and strong compensating factors.

Gustan Cho Associates is one of the few national mortgage companies with no lender overlays on VA loans. For example, the VA does not have a minimum credit score requirement on VA loans as long as the borrower can get an approve/eligible per the automated underwriting system.

Lender Overlays on Credit Scores on VA Loans

Most lenders will have a minimum credit score requirement of 620 to 680 FICO. This holds true even though the VA does not have a minimum credit score requirement. The Veterans Administration has no maximum debt-to-income ratio caps on VA loans.

Many mortgage companies have lender overlays on VA loans. Lender overlays are additional mortgage requirements from a individual lender that is higher than the minimum agency mortgage guidelines of the Veterans Administration.

Most lenders impose overlays on debt-to-income ratios at 45% to 50% DTI. Again, Gustan Cho Associates has no lender overlays on DTI on VA loans. We are one of the few national mortgage companies with no lender overlays on VA loans.

Qualifying For VA Loans With a Lender With No Overlays

Borrowers who have been turned down for a VA loan during Chapter 13 Bankruptcy repayment plan or are being told they do not qualify after the bankruptcy discharge date until one or two years later, please get in touch with us at Gustan Cho Associates at 800-900-8569 or text us for a faster response.

Gustan Cho Associates has a national reputation of being able to do VA loans other lenders cannot do. We have a national reputation for its no lender overlays on VA loans.

Over 80% of our borrowers at Gustan Cho Associates could not qualify at other lenders due to their lender overlays and/or get a last-minute mortgage denial. Gustan Cho Associates is a five-star national mortgage company licensed in multiple states with no lender overlays on VA loans.

Best Lenders For VA Loans During Chapter 13 Bankruptcy

Not all mortgage lenders can do VA loans during Chapter 13 Bankruptcy repayment and after Chapter 13 Bankruptcy discharge. Again, most lenders will have mortgage overlays on VA loans. Gustan Cho Associates has a national five-star reputation for its no-lender overlays on government and conventional loans. There is no other mortgage lender who is better than getting you approved for VA loans during Chapter 13 Bankruptcy.

Over 80% of our clients are borrowers that could not qualify at other mortgage companies due to lender overlays or because the borrower got a last-minute mortgage loan denial on VA loans.

As long as you meet the minimum VA Agency Lending Guidelines, Gustan Cho Associates will qualify you, and approve and close your VA loans. The team at Gustan Cho Associates are experts in originating VA loans during Chapter 13 Bankruptcy repayment plan. To qualify, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com. The Team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays.


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5 Comments

  1. I am seeking a lender that will refinance while in Chapter 13. I have about 15 months remaining before discharge. Payments are being made via Trustee. Therefore, I can only assume they have been made on time. I would appreciate the opportunity to discuss this with a loan officer.

  2. Looking for information on VA Refi. We are currently 3 years into our CH 13. Our Credit Union states we must be out of the CH 13 before they will assist.

  3. I would like to try to refinance to pay off my chapter 13 , I believe I have at least $225,000 in equity, I do not know if I can but, would like to try

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