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BUYING A HOUSE DURING CHAPTER 13 BANKRUPTCY
I have been in Chapter 13 for 12 months with no late payments. I would like to obtain an FHA to buy a home. However, I am concerned that my Chapter 13 monthly payment and student loans (deferred for 4 more years) will keep me from qualifying because my DTI will be too high. I only make about 70,000 a year. My Chapter 13 payment is 471 every two weeks. My student loans are around 80,000 (1% is 800). Is it possible for me to be approved?
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1 Reply
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Obtaining an FHA loan while having a Chapter 13 bankruptcy case is complicated. However, making payments for exactly one year gives you hope as it is still possible. We must look at your circumstances and decide your options from there.
Deeper Insight On the Debt-to-Income (DTI) Ratio
A DTI ratio is very important for the lender when deciding whether to approve a mortgage. The DTI ratio is a percentage of the gross monthly income and the total monthly debt repayments.
It is generally recommended that the DTI on FHA loans should be less than 46.9% front-end and 56.9% back-end of the income earned. Still, lenders sometimes accept higher ratios if sufficiently strong compensating factors exist.
How to Arrive At Your DTI
About monthly figures earned:
Their annual salary was $70,000. In round numbers, $70,000 divided by 12 gives a figure of $5,833.
Recurring debt obligations every month:
Chapter 13 Plan Obligation is to pay $471 every two weeks, which averages around $1,020 per month given a month consisting of 2.17 pay periods.
On student loans: Even though the loans are on deferment, the lenders can apply a monthly payment for DTI considerations as long as the loan remains active. Selling this will result in 0.50% monthly payments—roughly $800.67 annually.
Total Monthly Debt:
Chapter 13: $1,020
Student Loans: $67
Total: $1,087
DTI Calculation:
DTI = Total Monthly Debt / Gross Monthly Income
DTI = $1,087 / $5,833 = 18.6%
FHA Loan Approval Criteria
Good Payment History: You were able to make payments on time for the last 12 months before filing for Chapter 13, which is an advantage.
Credit Score: Check that your score meets the FHA’s standard (generally, it’s 580 for 3.5%percent down)
Compensating Factors: Other contributing stressors may include having a good score, adequate savings, or a good employment record, which will lower DTI.
Next Steps
Seek Advice from a Consultant: Qualified consultants can determine lenders dealing with FHA, which allows people under Chapter 13 to borrow, and ensure the strategy is tailored according to the client’s situation.
Get Pre-Approved: A pre-approval determines your worth to Three-Dimensional lenders and reviews your financial history.
Think About Bigger Contribution: Doing that will increase your chances of getting approval and reduce your monthly payment.
Looking at your gross income and total monthly debts, including your FHA-approved maximum housing payment, you have a fairly normal DTI, which works well for your eligibility to apply for an FHA loan. However, other lenders might have other minimum requirements and standards, so you must contact a mortgage expert who can properly navigate and evaluate what you can do.