-
MORTGAGE APPROVAL 16 MONTHS INTO CHAPTER 13 REPAYMENT
I’m currently in chapter 13 bankruptcy but made 1 yr and 4 mos of on time payment. Could I qualify for an FHA loan
-
1 Reply
-
You can get an FHA loan while still in Chapter 13 bankruptcy if you meet certain conditions. HUD, the parent of FHA, allows borrowers in Chapter 13 bankruptcy to obtain a mortgage, provided they meet the following criteria:
Payment History
- You need to have completed at least 12 months of on-time payments on your Chapter 13 bankruptcy repayment plan.
- You meet this requirement since you’ve made one year and four months of on-time payments.
Trustee Approval
- You will need written approval from the bankruptcy trustee to take on new debt, including an FHA mortgage.
- Your bankruptcy trustee must confirm that you’re financially stable enough to manage the bankruptcy payments and a mortgage.
Manual Underwriting
- Because you’re still in active bankruptcy, your loan will likely go through manual underwriting.
- Lenders will assess compensating factors, such as:
- Stable employment history.
- Low debt-to-income (DTI) ratio.
- Demonstrate financial responsibility during your bankruptcy repayment period.
Credit Score
- While FHA loans are more flexible with credit scores, having a score of at least 580 will give you better terms.
- Some lenders might even accept lower scores with compensating factors.
- If your credit score is below 580, you may still qualify but need to make a larger down payment (typically around 10%).
Other Loan Requirements
- You’ll need to meet the basic FHA loan requirements, such as a minimum 3.5% down payment (if your credit score is 580 or higher) and verifiable income to ensure you can afford the loan.
Lender Flexibility
- Not all lenders offer FHA loans to borrowers in Chapter 13 bankruptcy.
- It’s important to find a lender experienced with this type of situation.
After Discharge or Dismissal of Chapter 13
- Suppose you wait until your Chapter 13 bankruptcy is discharged or dismissed.
- In that case, you’ll need to wait at least two years from the discharge date before qualifying for an FHA loan without additional conditions, such as trustee approval.
Would you like more information on finding lenders specializing in FHA loans for Chapter 13 borrowers or help preparing your documentation?