Chapter 13 Home Loan Guidelines on FHA and VA Mortgages

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In this blog, we’ll delve into Chapter 13 home loan guidelines on FHA and VA Mortgages. Navigating the world of home loans can be daunting, especially if you have a Chapter 13 bankruptcy in your financial history. However, despite past financial struggles, both Federal Housing Administration (FHA) and Veterans Affairs (VA) loans provide potential pathways to homeownership.

How Soon After Filing Chapter 13 Bankruptcy Can I Apply For a Mortgage?

FHA and VA loans Chapter 13 home loan guidelines are exactly the same.  Borrowers need to be in the Chapter 13 repayment plan for at least 12 months. 12 months of timely payments need to be made to become eligible for FHA and/or VA loans during the Chapter 13 repayment plan. The bankruptcy trustee needs to sign off on the home purchase and mortgage. Trustees will sign off on a home purchase and home loan during the Chapter 13 Bankruptcy repayment plan with no issues. Click here to apply for a mortgage after chapter 13 bankruptcy

FHA and VA Chapter 13 Home Loan Guidelines on Waiting Period Requirements

Chapter 13 Bankruptcy does not have to be discharged. Not all lenders will approve FHA and/or VA loans during a Chapter 13 Bankruptcy repayment plan even though HUD and VA Agency Guidelines state borrowers qualify during a repayment plan. Not all lenders do manual underwriting. Lenders can have higher lending requirements called lender overlays

Tips for Applying

• Documentation: Be prepared to provide documentation regarding your bankruptcy and payment history. This includes discharge or dismissal papers and any relevant court documents.
• Credit Improvement: Improve your credit score by making timely payments on all debts and reducing your debt-to-income ratio. This can increase your chances of qualifying for better loan terms.
• Consult Experts: Speak with loan officers who specialize in post-bankruptcy lending. They can provide guidance tailored to your situation and help you navigate the complexities of applying for a loan with a bankruptcy background.
• Explore Options: Don’t stop at FHA and VA loans; explore other mortgage options that might be available. Each has different benefits and requirements, which might suit your situation better.

Mortgage Lenders For Bad Credit For Manual Underwriting

Gustan Cho Associates are expert in manual underwriting on FHA and VA loans. Gustan Cho Associates Grou, Inc. has no lender overlays on government and conventional loans. We just go off the automated findings of the automated underwriting system (AUS) and have no other lender overlays.

Manual Underwriting Guidelines On FHA And VA Loans

Both FHA and the VA Chapter 13 Bankruptcy on FHA and VA loans are the same. VA and FHA are the two-only loan programs that permit manual underwriting. Any Chapter 13 Bankruptcy that has not been seasoned two years after the discharge date needs to be manually underwritten. This holds true when a borrower is in an active Chapter 13 repayment plan. Manual underwriting guidelines apply. Mortgage underwriters have a lot of underwriter discretion on manual underwrites. Apply for FHA and VA Loans

Chapter 13 Home Loan Guidelines on FHA and VA Loans and How It Works

In this paragraph, we will discuss qualifying for an FHA and VA loan during the Chapter 13 Bankruptcy repayment plan. In order to qualify, the borrower needs to have filed Chapter 13 Bankruptcy at least 12 months ago. The borrower needs to provide the lender they have made timely payments in the past 12 months to the Bankruptcy Trustee. The Trustee needs to approve the home purchase and the new housing payment.

Trustee Approval For FHA and VA Loan During Chapter 13 Bankruptcy 

Bankruptcy Trustees normally sign off on all home purchase requests by mortgage borrowers. This holds true as long as the home price is reasonable and the consumer can afford the new housing payment. Gustan Cho Associates are expert in helping borrowers qualify for FHA and VA Loans during and after Chapter 13 Bankruptcy. Not all lenders will do manual underwriting. However, a large percentage of our mortgage loan applications are FHA and/or VA manual underwrites.

Manual Underwriting Guidelines on FHA and VA Loans

As mentioned in the earlier paragraph, FHA and the VA are the only two federal agencies that allow manual underwriting on home loans. The difference between an automated underwriting system versus manual underwriting is with manual underwrites, a human mortgage underwriter closely underwrites the borrower. Compensating factors are key with all manual underwrites.

What Are Compensating Factors in Manual Underwriting

Compensating factors are important for borrowers with higher debt-to-income ratios. All borrowers need to abide by the VA and/or HUD mortgage guidelines. However, scrutiny is emphasized when it comes to debt-to-income ratios. Mortgage underwriters have a lot of discretion on manual underwrites. The VA has no debt-to-income ratio caps on VA loans when it comes to automated underwriting system (the AUS) findings.

FHA and VA Manual Underwriting Guidelines

With manual underwriting, lenders do not want to see borrowers surpass 50% DTI unless there are strong compensating factors. Verification of rent is normally required on manual underwriting. Gustan Cho Associates will exempt verification of rent for borrowers who are living rent-free with family.  If the borrower is living rent-free due to saving money for the down payment and closing costs on a home purchase, the verification of rent is waived. Payment shock is scrutinized on manual underwrites. Mortgage underwriters want to see low payment shock.  Click here to apply for a FHA and VA after chapter 13 bankruptcy

Chapter 13 Home Loan Guidelines After Bankruptcy Discharge

Many of our viewers visit us at Gustan Cho Associates because they were told by other lenders they do not qualify for a VA and/or FHA loan right after the Chapter 13 discharge date. They are often told they need to wait for one to two years to qualify after the Chapter 13 bankruptcy discharge date. However, this is not the case. Both HUD and VA Guidelines state there is no mandatory waiting period after the Chapter 13 Bankruptcy discharge date. However, the automated underwriting system will not render an approve/eligible per AUS if the discharge has been seasoned less than two years.

Chapter 13 Home Loan Guidelines After Discharge on FHA and VA Loans

All VA and/or FHA loans with less than 2-year seasoning from the discharge date need to be manual underwriting. Not all lenders do manual underwriting on VA and FHA loans. However, The team at Gustan Cho Associates are experts in originating, underwriting, and funding manual underwrites. Click here to apply for a mortgage after chapter 13 bankruptcy

Frequently Asked Questions (FAQs)

1. Can I qualify for an FHA loan during Chapter 13 bankruptcy?
   Certainly! You are eligible to qualify for FHA loans while you are in Chapter 13 bankruptcy, but you need to have made at least 12 months of on-time payments and get court approval.
2. What is the lowest credit score required to obtain an FHA loan following Chapter 13 bankruptcy?
   The FHA usually requires a minimum credit score 580 to qualify for a 3.5% down payment. However, lenders might have higher requirements post-bankruptcy.
3. How long after Chapter 13 bankruptcy can I apply for an FHA loan?
   You can apply for an FHA loan once you have finished your Chapter 13 payment plan. However, some lenders may require a waiting period of one to two years after discharge.
4. What is the required down payment for an FHA loan following Chapter 13 bankruptcy?
   The down payment requirement remains at 3.5% for most borrowers with a 580 or above credit score. Those with lower scores may need to put down 10%.
5. Can I get a VA loan while in Chapter 13 bankruptcy?
   Yes, like FHA loans, you can qualify for a VA loan during Chapter 13 bankruptcy with court approval and a good payment history of at least 12 months.
6. What credit score is needed to secure a VA loan after Chapter 13 bankruptcy?
   The VA doesn’t have minimum credit score, but almost all lenders prefer a score of at least 620.
7. How soon after Chapter 13 discharge can I apply for a VA loan?
   Veterans can apply for a VA loan immediately after discharge from Chapter 13 bankruptcy. Still, lender policies may vary, with some requiring a waiting period.
8. Is there a down payment required for a VA loan post-Chapter 13?
   VA loans mostly do not require a down payment, but lender criteria for creditworthiness can influence loan approval.

Borrowers who need to qualify for a mortgage during and/or after Chapter 13 bankruptcy, please contact us at Gustan Cho Associates by calling 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.

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