FHA Loans After Chapter 13 Bankruptcy

FHA Loans After Chapter 13 Bankruptcy Guidelines

ByGustan Cho
Tweet
Share
Share
Pin
Share
0 Shares

Emerging from Chapter 13 bankruptcy can be a challenging but transformative journey. Federal Housing Administration (FHA) loans provide a viable path forward for individuals eager to embark on homeownership. This comprehensive guide will delve into the FHA guidelines for obtaining a home loan after Chapter 13 bankruptcy, exploring the eligibility criteria, waiting periods, and steps individuals can take to rebuild their financial future through the FHA loan program.

Under HUD Guidelines, home buyers and homeowners can qualify for FHA Loans after Chapter 13 Bankruptcy with no waiting period. HUD (The U.S. Department of Housing and Urban Development) is the parent of the Federal Housing Administration (FHA). VA Guidelines in qualifying for VA Home Loans during and after Chapter 13 Bankruptcy are exactly the same as those of FHA. This blog, although titled FHA Loans After Chapter 13 Bankruptcy, it also applies to Veteran Borrowers qualifying for VA Loans during and after Chapter 13.

Can I Qualify For a a VA or FHA Loans after Chapter 13 Bankruptcy?

FHA and VA Chapter 13 Bankruptcy Guidelines are almost identical. FHA and VA loans are the only two mortgage loan programs that allow manual underwriting. FHA and VA loans are the two only mortgage loan programs that allow home loan approval during Chapter 13 Bankruptcy during repayment plan after one year of the filing date. Trustee approval is necessary. In the following paragraph, we will cover FHA loans after Chapter 13 Bankruptcy Guidelines.

Check If You’re Qualified For FHA Loans After Chapter 13 Bankruptcy, Click Here.

What Are FHA Loans After Chapter 13 Bankruptcy?

FHA Loans After Chapter 13 Bankruptcy may be different for every mortgage lender due to their mortgage lender overlays. Lenders with no overlays will go off minimum HUD Guidelines on FHA Loan After Chapter 13 Bankruptcy. Most lenders will have waiting period requirements after a home buyer has a Chapter 13 discharge.

HUD Guidelines On Mortgage After Chapter 13 discharge does not require any waiting period after the discharge date the Chapter 13. I get dozens of calls and inquiries every day from potential home buyers who have worked very hard in completing their repayment plan through their Bankruptcy.

They just got discharged to be told by multiple lenders that they cannot qualify for an FHA Loan until one year or two years after the discharge date of their Chapter 13 discharge date. This is so not true.

Lenders who advise borrowers who recently got a Chapter 13 discharge should tell them that they may not qualify with them. However, borrowers are able to qualify for an FHA Loan with some other mortgage company with no lender overlays with a waiting period after a Chapter 13 Bankruptcy discharged date.

Manual Underwriting Mortgage Process

FHA Loans After Chapter 13 Bankruptcy works like any other FHA loan requirements. However, they all need to be manual underwriting files if the waiting period after the bankruptcy is less than two years. FHA states that if an FHA borrower has a Chapter 13 Bankruptcy discharge, there is no waiting period to qualify for an FHA Loan. However, if the Chapter 13 Bankruptcy discharge has been seasoned for less than two years, then the FHA Loan After Chapter 13 Bankruptcy discharge will need to be manually underwritten.

All manually underwritten mortgage loans will require verification of rent and will require compensating factors. With manually underwritten mortgage loans, there is a lot of underwriter’s discretion that comes into play. A mortgage underwriter can approve an FHA Loan on a manual underwrite with a debt-to-income ratio of higher than 50% DTI if the borrower has strong compensating factors. Compensating Factors are positive factors that a mortgage borrower has. Examples of compensating factors include:

    • Longevity on the job
    • Reserves
    • Larger down payment
    • Verification of rent, low payment shock
    • Other positive factors such as a non-borrowing spouse with great income that is not being used to qualify the borrower.

Talk To Our Expert Loan Officers To Learn More

Benefits of Homeowner Versus Renter

Verification Of Rent Requirement On Manual Underwriting

Verification Of Rent is mandatory for all manual underwriting of FHA Loans. Home Buyers who are living rent-free with family, relatives, and friends, unfortunately, cannot provide rental verification. Rental Verification is required with manual underwriting. However, we can accept borrowers who are living rent-free with family with a rent-free letter.

Home Buyers who can afford rent often times live with family, relatives, and friends rent-free so they can save enough money and develop reserves for a home purchase. But in the eyes of mortgage regulation experts, this is not acceptable and rental verification is required with lenders with overlays. Gustan Cho Associates has no overlays and can qualify borrowers living rent-free as long as the reason is to save money for a down payment on the home purchase

FHA Loans During Chapter 13 Bankruptcy Repayment Plan

Home buyers or homeowners can qualify for an FHA purchase and/or refinance mortgage during a Chapter 13 repayment plan one year into the bankruptcy. It needs to be a manual underwrite plus the borrower will need the approval of the Chapter 13 Trustee which is normally not a problem. Borrowers need to provide one year’s on-time payment history of their creditors and verification of rent is required

Other Requirements

Other guidelines to qualify for FHA Loans During and After Chapter 13 Bankruptcy include the following:

  • A minimum credit score of 580
  • The minimum down payment for borrowers with at least 580 credit score is 3.5% down payment
  • Up to 6%, sellers concessions are allowed by sellers to contribute to buyers closing costs
  • Seller concessions can only be used for closing costs and cannot be used for the down payment
  • The underwriter decides the maximum debt-to-income ratio on manual underwrites
  • I have seen manual underwriting borrowers get approved with 50% debt to income ratios as long as they had strong compensating factors
  • No late payments during and after the bankruptcy discharged date

FHA Loans after Chapter 13 Bankruptcy represent a second chance for individuals looking to rebuild their financial lives and achieve the dream of homeownership. By understanding and adhering to FHA guidelines, focusing on credit rebuilding, and seeking professional guidance, borrowers can confidently navigate the path to FHA loan eligibility. Keep in mind, the path ahead might pose challenges, yet with resilience and strategic planning, FHA loans can provide a renewed opportunity for homeownership and financial stability.

Frequently Asked Questions (FAQs)

  • Q: Can I qualify for an FHA loan after filing for Chapter 13 bankruptcy?
    A: Yes, qualifying for an FHA loan is possible after completing a Chapter 13 bankruptcy. However, you must meet specific waiting periods and eligibility requirements.
  • Q: What is the waiting period for FHA loans after Chapter 13 bankruptcy?
    A: Typically, you must wait at least two years from the discharge date of your Chapter 13 bankruptcy before being eligible for an FHA loan.
  • Q: Is it possible to apply for an FHA loan while I’m in the midst of my Chapter 13 bankruptcy repayment plan?
    A: Typically, securing an FHA loan while actively enrolled in a Chapter 13 bankruptcy repayment plan is challenging. It would help if you usually waited until after discharge.
  • Q: What are the eligibility requirements for an FHA loan after Chapter 13 bankruptcy?
    A: Eligibility criteria include a stable employment history, a minimum credit score, and the capacity to showcase responsible financial conduct following bankruptcy are requirements.
  • Q: Do I need to provide a specific reason for the Chapter 13 bankruptcy in my FHA loan application?
    A: You might be required to furnish a letter explaining the situations that precipitated your bankruptcy, such as job loss, medical challenges, or divorce.
  • Q: How can I improve my credit after Chapter 13 bankruptcy to meet the FHA loan requirements?
    A: Reestablishing your credit entails making punctual payments on current debts, maintaining low balances on credit cards, and steering clear of additional adverse credit incidents.
  • Q: Are there FHA-approved lenders that specialize in post-bankruptcy loans?
    A: Some lenders specialize in working with borrowers who have gone through bankruptcy and can provide guidance on FHA loan options.
  • Q: Is it permissible to enlist a co-signer’s assistance in meeting the eligibility criteria for an FHA loan following Chapter 13 bankruptcy?
    A: While a co-signer may help with qualification, the primary borrower must still meet the FHA’s eligibility criteria, including credit and income requirements.
  • Q: Which documents should I furnish when submitting an application for an FHA loan following Chapter 13 bankruptcy?
    A: You must submit documents such as proof of income, tax returns, bank statements, and a copy of your bankruptcy discharge papers.
  • Q: Is working with a credit counselor or financial advisor during recovery advisable?
    A: It can be advantageous to ask assistance from a financial advisor to formulate a strategy for rebuilding your credit and attaining financial stability.

Talk to one of our expert Loan Officer here at Gustan Cho Associates by calling us at 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!

Get Approve Now! Call Us Even During Weekends and Holidays.

Similar Posts