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GETTING APPROVED FOR A MORTGAGE DURING AND AFTER CHAPTER 13 BANKRUPTCY
What type of loans can I qualify during and after Chapter 13 Bankruptcy? How long after a Chapter 13 bankruptcy can I get an FHA loan? How long after Chapter 13 can you get a VA loan? Bankruptcy Waiting Periods For VA Loans Vs. Other Mortgages. Bankruptcy Waiting Periods For FHA Loans Vs. Other Mortgages. How long after Chapter 13 can I get a home equity loan? Lenders generally require a waiting period of between one and five years from discharge or dismissal — and up to seven following foreclosure — before they’ll approve you for a home equity loan. This is because they want to be sure you’ve righted your finances and can manage new debt. What is manual underwriting and how does manual underwriting work?
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This discussion was modified 5 months ago by
Ollie.
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This discussion was modified 5 months ago by
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FHA and VA Loans During and After Chapter 13 Bankruptcy
Obtaining FHA and VA loans during and after Chapter 13 bankruptcy involves meeting specific guidelines set by the U.S. Department of Housing and Urban Development (HUD) and the Department of Veterans Affairs (VA). Here’s a detailed overview:
FHA Loans During Chapter 13 Bankruptcy
Eligibility Requirements:
On-Time Payments: Borrowers must have made 12 months of on-time payments to their Chapter 13 repayment plan.
Court Approval: The bankruptcy court must approve the borrower’s request for a new mortgage loan.
Manual Underwriting: Loans are subject to manual underwriting, which involves a comprehensive review of the borrower’s financial situation.
Credit and Income: Borrowers need to demonstrate stable income and meet credit requirements, which typically include a minimum credit score of around 580, though this can vary by lender.
Debt-to-Income Ratio: Borrowers must meet FHA’s debt-to-income (DTI) ratio requirements, which generally allow for a maximum of 43% for front-end ratios and up to 56.9% for back-end ratios, depending on compensating factors.
FHA Loans After Chapter 13 Bankruptcy
Eligibility Requirements:
Discharge Requirements: Borrowers must wait at least two years from the discharge date of their Chapter 13 bankruptcy to qualify without manual underwriting. Suppose they have demonstrated strong credit and financial management during and after the bankruptcy. In that case, they can be eligible for an FHA loan one year after discharge.
Credit and Financial Stability: Borrowers should improve their credit score and maintain a positive credit history post-bankruptcy.
Documentation: You will need a copy of the bankruptcy discharge papers and documentation of timely payments throughout the bankruptcy period.
VA Loans During Chapter 13 Bankruptcy
Eligibility Requirements:
On-Time Payments: Similar to FHA loans, VA loans require that borrowers have made at least 12 months of on-time payments to their Chapter 13 repayment plan.
Court Approval: The bankruptcy court must approve the borrower’s request to obtain new debt.
Manual Underwriting: VA loans are also subject to manual underwriting, involving a thorough review of the borrower’s financial history and current status.
Credit and Income: Borrowers must demonstrate sufficient income and meet the VA’s credit requirements. Most lenders prefer a minimum credit score of 620.
VA Certificate of Eligibility: Borrowers must obtain a Certificate of Eligibility (COE) from the VA, verifying their entitlement to VA home loan benefits.
VA Loans After Chapter 13 Bankruptcy
Eligibility Requirements:
Discharge Requirements: Similar to FHA loans, borrowers typically need to wait at least two years from the discharge date of their Chapter 13 bankruptcy.
Credit and Financial Stability: Borrowers should improve their credit score and maintain a positive credit history post-bankruptcy.
Documentation: You need a copy of the bankruptcy discharge papers and evidence of timely payments throughout the bankruptcy period.
FHA Loans:
Chapter 13: Require at least 12 months of on-time payments, court approval, manual underwriting, and stable income.
After Chapter 13: Require a waiting period of one to two years post-discharge, improved credit, and documentation of timely payments.
VA Loans:
Chapter 13: Require at least 12 months of on-time payments, court approval, manual underwriting, sufficient income, and a Certificate of Eligibility.
After Chapter 13: Require a waiting period of up to two years post-discharge, improved credit, and documentation of timely payments.
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Types of Loans Available During and After Chapter 13 Bankruptcy
FHA Loans:
- During Chapter 13: Borrowers can qualify for an FHA loan after making 12 months of on-time payments in their Chapter 13 plan and with court approval.
- Manual underwriting is required.
- After Chapter 13: Borrowers can qualify for an FHA loan one year after discharge if they have a good payment history and improved credit, but generally, it is easier to qualify after two years.
VA Loans:
- During Chapter 13: Similar to FHA loans, VA loans require at least 12 months of on-time payments in the Chapter 13 plan and court approval.
- Manual underwriting is necessary.
- After Chapter 13: Typically, borrowers can qualify for a VA loan one year after discharge, provided they have a stable credit history and meet the other VA requirements.
Conventional Loans:
- After Chapter 13: Generally, borrowers must wait at least two years after discharge to qualify for a conventional loan, although some lenders may require a longer period.
USDA Loans:
- After Chapter 13: USDA loans usually require a one-year waiting period after discharge with proof of on-time payments and court approval.
Non-QM Loans:
- During Chapter 13: Most Non-QM loans do not allow borrowers in an active Chapter 13 plan, but policies vary by lender.
Waiting Periods for Different Loan Types
FHA Loans:
- During Chapter 13: 12 months of on-time payments and court approval.
- After Chapter 13: One year after discharge, but two years is generally recommended for better terms.
VA Loans:
- During Chapter 13: 12 months of on-time payments and court approval.
- After Chapter 13: One year after discharge.
Conventional Loans:
- After Chapter 13: A two-year waiting period after discharge is typically required.
USDA Loans:
- After Chapter 13: One year after discharge with on-time payments.
Home Equity Loans
Lenders generally require a waiting period of one to five years from discharge or dismissal of Chapter 13 before approving a home equity loan. This period ensures borrowers have stabilized their finances and can responsibly manage new debt.
Manual Underwriting
What is Manual Underwriting?
- Manual underwriting is when a human underwriter reviews a loan application instead of using an automated system.
- This process is often used for applicants with non-traditional credit profiles, such as those currently or recently discharged from bankruptcy.
How Does Manual Underwriting Work?
- Detailed Documentation: Borrowers must provide extensive documentation of their income, debts, and payment history.
- Credit Analysis: The underwriter reviews the borrower’s entire credit history, focusing on recent payment history and any compensating factors.
Verification of Income and Assets:
- The underwriter will verify the borrower’s income through tax returns, bank statements, and other financial documents.
Debt-to-Income Ratio (DTI):
- The underwriter evaluates the borrower’s DTI ratio to ensure they can afford the new loan payments.
Compensating Factors: The underwriter may consider factors such as a significant down payment, large cash reserves, or a stable employment history to offset the risks associated with a lower credit score or past bankruptcy.
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FHA Guidelines During Vs After Chapter 13 Bankruptcy
FHA guidelines during vs after Chapter 13 Bankruptcy require one year into a Chapter 13. No waiting period after the Chapter 13 discharge date.