VA Loans During Chapter 13 Bankruptcy

This guide covers qualifying VA loans during Chapter 13 Bankruptcy repayment plan. Eligible borrowers can qualify for a VA loan during Chapter 13 Bankruptcy one year into the Chapter 13 Bankruptcy repayment plan. You need bankruptcy trustee approval and need to have been timely on the Chapter 13 Bankruptcy payments with no late payments.

In the following, we will cover VA Loans During Chapter 13 Bankruptcy. We will discuss VA manual underwriting guidelines since all VA loans during Chapter 13 bankruptcy need to be manually underwritten.

Learn more about VA Loans during Chapter13 Bankruptcy. Talk to us.

Understanding Chapter 13 Bankruptcy

Before delving into the intricacies of VA Loans during Chapter 13 bankruptcy, it’s essential to grasp the basics of Chapter 13 bankruptcy itself.

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy is a lawful procedure that enables individuals with a steady income source to restructure their debts and establish an attainable repayment plan. Unlike Chapter 7 bankruptcy, which involves liquidating assets to pay off debts, Chapter 13 bankruptcy aims to enable individuals to retain their assets while restructuring their debts.

VA Loans Overview

A VA Loan is a housing loan program designed to aid veterans in financing their homes, active-duty military personnel, as well as qualified surviving spouses, are eligible to participate in purchasing or refinancing homes. VA Loans are renowned for their favorable terms, including competitive interest rates, no down payment requirement (in most cases), and the absence of private mortgage insurance (PMI).

Eligibility for VA Loans  During Chapter 13 Bankruptcy

Qualifying for VA Loans during Chapter 13 bankruptcy involves specific requirements and considerations. While the VA itself doesn’t impose a waiting period, your ability to secure a VA Loan during this process depends on various factors, including:

• Chapter 13 Plan Payments: Lenders typically require you to have made at least 12 months of on-time Chapter 13 plan payments before considering your VA Loan application.
• Bankruptcy Court Approval: Securing authorization from both the bankruptcy court and your Chapter 13 trustee is necessary to take on new debt, including a VA Loan, during Chapter 13 bankruptcy.
• Credit Score: Although VA Loans don’t have a specific minimum credit score requirement, most lenders prefer individuals applying with a credit score of 620 or more.
• Debt-to-income Ratio: Lenders evaluate your debt-to-income ratio, which should generally be at most 41%. This ratio considers your monthly debt payments relative to your income.
• Reestablished Credit: Demonstrating responsible credit use and reestablishing good credit after bankruptcy is essential to qualify for a VA Loan.

Manual Underwriting Guidelines on VA Loans During Chapter 13 Bankruptcy

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 in 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.

We are interested in your efforts to pay all creditors / financial obligations. An underwriter will review your credit report with a fine-tooth comb and ensure no missed payments or non-medical collections in the previous 12 months.

VA Loans During Chapter 13 Bankruptcy With Late Payment Guidelines

VA loans have more lenient mortgage guidelines than any other loan program. VA loans require timely payments in the past 12 months. Manual underwriting guidelines on VA loans require timely payments in the past 12 months. Timely payments in the past 12 months is also necessary for you to get an automated underwriting approval.

VA does not have a minimum credit score or debt-to-income ratio requirements. VA loans does not have a maximum debt-to-income ratio caps.

If you have late payments in the past 12 months, you will need a strong letter of explanation and verifiable proof of why you were late (such as hospitalization). With proper documentation, late payments will be viewed case-by-case and approved only at the underwriter’s discretion.

Get Approved For Manual Underwriting With No Lender Overlays on VA Loans

How Does Manual Underwriting Works on VA Loans During Chapter 13 Bankruptcy?

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 ensure you have paid your rent on time. An underwriter needs to make sure you pay your housing expenses. We will know your payment history based on your credit report if you have a mortgage. If you rent, an underwriter may go as far as 24 months to ensure 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. At the same time, 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 loan with debt-to-income ratios as high as 64.99% with strong residual income and strong compensating factors.

Of course, the underwriter is more likely to approve your file with lower debt-to-income ratios, but it is still possible. 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 bankruptcy 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 because 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. Often, the trustee will want to know how they saved the 3.5% while actively trying to pay their creditors back.

Credit Guidelines on VA Loans

For veterans with high student loans, the VA requires underwriters to take 5% of the student loan balance and divide it by 12 months. This resulting figure will be the hypothetical monthly student loan payment. Surviving spouses of deceased veterans who had COE benefits qualify. Can use COE benefits multiple times unless entitlements have been used up with prior foreclosure. Veterans with bad credit, outstanding collections, or charge-offs can qualify for VA home loans.

Lender Overlays on VA Home Loans

One of the most important facts about VA home loans that home buyers do not know is that every lender has their mortgage guidelines. Lenders must ensure all borrowers meet the bare minimum guidelines of the Department of Veterans Affairs.

Benefits of VA Loans During Chapter 13 Bankruptcy

• Access to Homeownership: VA Loans provide an opportunity to achieve homeownership even during or after Chapter 13 bankruptcy.
• Competitive Terms: VA Loans offer favorable terms, including competitive interest rates and the absence of a down payment requirement.
• Debt Consolidation: VA Loans can be used to consolidate and refinance existing debts, simplifying your financial situation.

Risks of VA Loans During Chapter 13 Bankruptcy

• Bankruptcy Court Approval: Securing court approval for incurring new debt can be challenging, and rejection may hinder your homeownership plans.
• Credit Rebuilding: Reestablishing good credit after bankruptcy is crucial, and not doing so could impact your eligibility for a VA Loan.
• Debt Management: Managing mortgage payments alongside Chapter 13 plan payments requires careful budgeting and financial discipline.
• Possible Waiting Period: Depending on your credit and bankruptcy history, you may still need to meet certain waiting period requirements.

Tips for Success

To increase your chances of successfully obtaining a VA Loans during or after Chapter 13 bankruptcy, consider the following tips:

• Meet Chapter 13 Requirements: Make sure you’ve completed a minimum of 12 months of timely Chapter 13 plan payments before submitting your application for a VA Loan.
• Bankruptcy Court Cooperation: Work closely with the bankruptcy court and your trustee to obtain the necessary approvals.
• Credit Repair: Focus on rebuilding your credit by managing debt responsibly, making on-time payments, and avoiding new negative credit entries.
• Lender Selection: Choose a lender experienced in VA Loans during or after Chapter 13 bankruptcy and compare offers to find the best terms.
• Budget Wisely: Assess your budget to determine your ability to manage mortgage payments and related costs comfortably.
• Professional Guidance: Consider seeking assistance from a mortgage broker or advisor with expertise in this unique financial situation.

Frequently Asked Questions (FAQs)

1. Can I get a VA Loan during Chapter 13 bankruptcy? Yes, obtaining a VA Loan while in Chapter 13 bankruptcy is possible, but you must meet specific eligibility requirements.
2. What is Chapter 13 bankruptcy? Chapter 13 bankruptcy is a lawful process that permits individuals who have regular income to restructure and repay their debts over three to five years, typically three to five years.
3. Can I apply for a VA Loan immediately after filing Chapter 13 bankruptcy? No, you generally cannot apply for a VA Loan immediately after filing for Chapter 13 bankruptcy. Lenders typically require you to have made at least 12 months of on-time Chapter 13 plan payments.
4. What is the waiting period for VA Loans after Chapter 13 bankruptcy discharge? You may be eligible for a VA Loan two years after your Chapter 13 bankruptcy discharge, assuming you have reestablished good credit and meet other VA requirements.
5. Are there exceptions to the waiting period for VA Loans during Chapter 13 bankruptcy? Yes. Some perceptions may allow you to qualify for a VA Loan sooner if you demonstrate extenuating circumstances related to your bankruptcy.
6. Do I need permission from the bankruptcy court to get a VA Loan during Chapter 13 bankruptcy? Yes, you typically need permission from the bankruptcy court and your Chapter 13 trustee to obtain new credit, including a VA Loan, while in Chapter 13 bankruptcy.
7. What are the credit score requirements for a VA Loan during or after Chapter 13 bankruptcy? Although there is no designated minimum credit score requirement for VA Loans, lenders often look for a credit score of 620 or higher.
8. Can I include Chapter 13 bankruptcy payments in my debt-to-income ratio for a VA Loan application? You typically include your Chapter 13 bankruptcy payments in your debt-to-income ratio when applying for a VA Loan.
9. Is there a maximum loan amount for VA Loans during or after Chapter 13 bankruptcy? VA Loans do not come with a predefined maximum loan amount. Still, they are subject to country-specific loan limits, varying based on location.
10. Is it possible to use a VA Loan to refinance an existing mortgage while in Chapter 13 bankruptcy? Refinancing with a VA Loan during Chapter 13 bankruptcy may be possible with court approval and if it benefits your financial situation.
11. Is it feasible to submit a VA Loan application if there is a dismissed Chapter 13 bankruptcy recorded on my credit report? Generally, you can apply for a VA Loan after a Chapter 13 bankruptcy dismissal, but specific lender requirements may apply.
12. What documentation is required for a VA Loan application during or after Chapter 13 bankruptcy? You will typically need to provide documents related to your bankruptcy, proof of on-time Chapter 13 plan payments, and other standard mortgage application documentation.

Securing VA Loans during Chapter 13 bankruptcy or after, is a complex process that requires careful planning, adherence to court requirements, and responsible financial management. While it presents challenges, it also offers the opportunity for homeownership to veterans and active-duty service members who have faced financial setbacks.

By understanding the eligibility criteria, benefits, and risks and the tips for success outlined in this guide, you can confidently navigate the VA Loan application process. Remember that each borrower’s situation is unique, and it’s essential to consult with experienced mortgage professionals who can give guidance tailored to your needs.

Gustan Cho Associates have originated and funded countless VA loans with 500 credit score borrowers with 60% debt-to-income ratios. The team at Gustan Cho Associates are experts in helping borrowers get approved for VA loans during Chapter 13 Bankruptcy with no lender overlays.

You can contact us  calling 800-900-8569 or text us for a faster response. You can also email us at alex@gustancho.com. Our expert Loan Officers are available even during weekends and holidays!