09 Jun

Buying a Home with a Bankruptcy

Chapter 13 bankruptcy Home Loan program

Who this program is intended for:

If you are wondering if you would qualify for a Chapter 13 Bankruptcy mortgage program, you will need to make sure you are included in the situations that these loan programs are intended for.  The situations we will take a look at are as follows:

  1. Borrower currently in a Chapter 13 Bankruptcy Repayment Plan and has made 12 months of on time payments
  2. Borrower that is at least (1) day removed from a Chapter 13 Bankruptcy Discharge

Guidelines on program with NO lender overlays:

When looking into mortgage loan programs that deal with Chapter 13 Bankruptcy, it is wise to know both the FHA Guidelines, as found in the HUD 4000.1 Handbook, along with, any additional guidelines your lender requires. These lender guidelines are also known as “lender overlays.” A lot of lenders offer this program with FHA but have additional guidelines that are coming from the lender and not HUD/FHA. This makes it difficult, sometime impossible, to qualify. You need to make sure the lender you work with has NO lender overlays and directly underwrites to the FHA 4000.1 handbook Guidelines with Chapter 13 Bankruptcy:

  • Waiting Period: 1 day after discharged date or 12 months of on-time payments during your bankruptcy.
  • FICO Score: 500 and above (additional requirements may be required)
  • Down Payment Requirements: A minimum FICO score of 580 is required to obtain an FHA Loan with a 3.5% down payment.  If your FICO score is 500-579 you will be required to have a 10% down payment plus compensating factors in order to obtain a mortgage. – talk to our loan officer about your compensating factors.
  • Debt-To-Income Ratio: FHA Loan debt-to-income or DTI ratios are based on the FICO score used to get approval of the loan.  If your FICO score is 620+ you can have up to a 56.9% DTI ratio, however if your FICO score is below 620 you will only be able to carry a 43% DTI ratio. This is a case by case scenario and there are certain items you can and cannot exclude from this calculation. Please talk to our licensed loan officer to go over your scenario as they will work with you to get this done.
  • Loan Limits: FHA Loan Limits vary by the different counties across your state and can range from $275,665 to $636,150. Have one of our licensed loan officer check your county limits to confirm.
  • Other restrictions (not limited too): If you included a mortgage in your bankruptcy and now looking to purchase another home, you would need to either qualify for both mortgages or make sure you filed a deed in lieu/short sale/foreclosure which then will have other waiting periods in order to qualify.

Documentation needed:

Here is a list of the standard documentation you should expect to have ready in order to complete your application. This is for W2 wage earners and/or fixed income.

  • Last 2 years of Federal Tax Returns (All pages and Schedules)
  • Last 2 years of 1099’s and/or W2’s
  • Most recent paystub (30 days’ worth)
  • Any fixed income monthly statement (awards letter/pension statement)
  • 2 months of bank statements and/or all liquid assets accounts
  • Copy of driver’s license
  • Bankruptcy discharge papers if applicable
  • Last 12 months of cancelled rent checks
  • Last 12 months of trustee payments showing on time and full amount (if applicable)
  • Court approval stating you can enter into a mortgage

Common concerns/ FAQ:

  • How will the court determine if I can purchase a home while in Chapter 13 repayment plan?  Under normal circumstances, if your proposed monthly mortgage payment is similar to your current rent payment the approval shouldn’t be an issue.  However, if the proposed mortgage payment is significantly higher thus causing some doubt on sticking to your repayment plan the request may be denied.
  • How long does court approval take? After you have compiled all necessary information and documentation it could take 1-2 weeks to get a motion filed and another 5-6 weeks for the hearing of the motion to take place.  The sooner you can get your motion filed, the better.

Let’s get you a quick approval!

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