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Can I Get a Mortgage While in a Chapter 13 Bankruptcy
Chapter 13 Bankruptcy is normally a five year payment plan by the U.S. Bankruptcy Court. Five years is a long time. During the five year repayment plan of a Chapter 13 Bankruptcy, how can you buy a house? Are there mortgage lenders that will lend on homebuyers who are in an active Chapter 13 Bankruptcy repayment plan? How does Chapter 13 affect getting a mortgage? How long do I have to wait to purchase a house after Chapter 13? Can you get an FHA loan while in Chapter 13?
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3 Replies
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Homebuyers can get a mortgage while in a Chapter 13 Bankruptcy repayment plan. VA and FHA loans are the only mortgage programs that allow borrowers to get a mortgage during an active Chapter 13 Bankruptcy. Navigating the process of buying a house during a Chapter 13 bankruptcy can be complex, but it is not impossible. Here’s how Chapter 13 bankruptcy affects your ability to purchase a home and the options available:
Buying a House During Chapter 13 Bankruptcy
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Lender Approval: Some mortgage lenders may consider providing a loan to someone currently in a Chapter 13 bankruptcy plan, but they will require authorization from the bankruptcy court. You’ll need to get approval from the court to incur new debt.
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Waiting Period: Generally, you must have made at least 12 months of on-time payments as per the Chapter 13 payment plan. Additionally, you need the bankruptcy trustee’s approval, which shows that you’ve been making regular payments and can afford the additional loan responsibility.
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FHA Loans: Yes, you can qualify for an FHA loan while in Chapter 13 bankruptcy, under certain conditions. You need to have made at least one year of plan payments on time, and you’ll need a letter from the trustee giving you permission to incur new debt.
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VA Loans: Yes, you can qualify for a VA loan while in Chapter 13 bankruptcy, under certain conditions. You need to have made at least one year of plan payments on time, and you’ll need a letter from the trustee giving you permission to incur new debt.
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Manual Underwriting: VA and FHA loans in these situations usually require manual underwriting, where an actual person assesses your creditworthiness, rather than using automated processes. This underwriter will look at your overall financial situation, including your payment history under the bankruptcy plan.
After Completing Chapter 13 Bankruptcy
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FHA, VA, and USDA Loans: For FHA and USDA loans, you are eligible to apply for a mortgage as soon as one year after discharge. VA loans require a two-year wait after discharge.
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Conventional Loans: For conventional loans, the waiting period is typically four years after discharge. However, if the bankruptcy was dismissed (rather than discharged), the waiting period can extend to seven years.
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Rebuilding Credit: It’s crucial to focus on rebuilding your credit post-bankruptcy by making timely payments on any remaining or new debts. This will increase your chances of getting approved for a mortgage with favorable rates.
Strategies for Approval
- Steady Income: Show stable and sufficient income to handle your current debts, your living expenses, and your prospective mortgage payment.
- Down Payment: Save for a substantial down payment to lower the risk for the lender and improve the terms of your mortgage.
- Financial Counseling: Consider undergoing credit counseling or financial planning to bolster your financial standing and credibility in the eyes of the lender.
- Buying a house while in Chapter 13 bankruptcy is challenging but achievable with the right planning and court approval. Post-bankruptcy, there are more straightforward paths to obtaining a mortgage, particularly through government-backed loans which tend to have more lenient requirements compared to conventional loans.
Here is an article about buying a house while in a Chapter 13 bankruptcy:
https://gustancho.com/buy-and-sell-a-house-while-in-chapter-13-bankruptcy/
gustancho.com
How to Buy and Sell a House While in Chapter 13 Bankruptcy
Borrowers can buy and sell a house while in Chapter 13 Bankruptcy one year after filing date with no late and trustee approval on VA and FHA loans.
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Here are some key points about getting a mortgage while in an active Chapter 13 bankruptcy repayment plan or after completing one:
During an Active Chapter 13: It is possible to get approved for a mortgage while in an active Chapter 13 plan, but it is very difficult. Most lenders will not approve you until the plan is completed successfully. However there are lenders that specialize in helping borrowers get approved during Chapter 13 Bankruptcy repayment plan after one year of filing.
HUD, the parent of FHA, does allow for borrowers in Chapter 13 to get a loan if the plan has been re-established for 1 year, the bankruptcy was caused by circumstances beyond their control, and the borrower has good payment history for the plan. Some non-QM lenders or subprime/non-prime mortgage lenders may consider you if you have re-established credit and make all plan payments on time for 12+ months.
After Completing Chapter 13: Most lenders will require you to wait between 2 years after your Chapter 13 discharge before they will consider you for a mortgage. However, there is no waiting period after Chapter 13 Bankruptcy discharge on VA and FHA loans via manual underwrite.
VA and FHA does not have a waiting period after Chapter 13 discharge before you can get a VA or FHA loan, as long as you made all plan payments on time during the bankruptcy repayment plan.
Conventional loans backed by Fannie Mae generally have a 4-year waiting period from the dismissal date and two year waiting period after a Chapter 13 Bankruptcy discharge date.
During the waiting periods, you need to re-establish good credit and maintain current accounts.
Other Considerations: The wait times can be shorter (as little as 1 year after filing Chapter 13 Bankruptcy on VA and FHA loans with a manual underwriting) if the bankruptcy was due to extenuating circumstances like job loss, medical issues, etc. Having larger down payments of 10%+ can offset some risk for lenders. Getting a secured loan or having a non-purchasing spouse co-sign can also help qualify sooner.
Getting a mortgage during an open Chapter 13 Bankruptcy does not have to be difficult. It is definitely possible for VA home loans and FHA loans. Here is an informative guide on buying a house while in a Chapter 13 Bankruptcy.
https://gustancho.com/buying-house-while-in-chapter-13-bankruptcy/
gustancho.com
Buying House While In Chapter 13 Bankruptcy
Buying House While In Chapter 13 Bankruptcy is allowed with FHA and VA loans via manual underwriting after one year into the payment plan
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Purchasing a house while in an active Chapter 13 Bankruptcy repayment plan is possible. From what I know, FHA loans and VA loans are the only two mortgage loan programs that allow for mortgage loan approvals on purchase loans and refinance loans while in repayment plan. Non-QM lenders will not approve non-QM loans while in an active Chapter 13 Bankruptcy. Homeowners in a Chapter 13 Bankruptcy can buyout the Chapter 13 early with a cash-out refinance on VA or FHA loans with the exception in Texas. You cannot do cash-out refinance loans on government-back mortgage loans in Texas. Getting a VA or FHA loan can be done with a manual underwrite and it comes with certain conditions and requirements. Here’s a breakdown of what you need to know:
Buying a House During Chapter 13 Bankruptcy:
- Government-Backed Loans: FHA, and VA loans may allow you to apply for a mortgage as early as one year into your Chapter 13 repayment plan, provided you’ve made your payments on time.
- Court Approval: You must obtain permission from the bankruptcy court to take on new debt, such as a mortgage.
- Lender Approval: Some mortgage lenders may approve your loan application while you’re in a Chapter 13 repayment plan, especially if you’ve demonstrated a commitment to repaying your debts.
Impact on Mortgage Eligibility:
- Filing for Chapter 13 Bankruptcy does not disqualify you from obtaining an FHA-insured mortgage if at least 12 months of the pay-out period under the bankruptcy has elapsed and you’ve made all your payments on time.
- Lenders will need to see that you’ve taken meaningful steps to improve your credit and debt management before approving you for a home loan.
Waiting Period After Chapter 13 Discharge:
- FHA, and VA oans: There’s no waiting period after discharge if you meet the loan requirements.
- Conventional Loans: A two-year waiting period after discharge iof the Chapter 13 Bankruptcy is required.
FHA and VA Loan Eligibility During Chapter 13:
- You can become eligible for an FHA or VA loan after making at least 12 months of on-time payments within your Chapter 13 plan.
- You’ll also need permission from the bankruptcy court to obtain the mortgage.
It’s important to consult with a financial advisor or a bankruptcy attorney to understand how these options apply to your specific situation and to ensure that any new debts incurred do not interfere with your repayment plan or your ability to discharge the debt when the bankruptcy is completed. Remember, each lender may have their own additional requirements or waiting periods, so it’s crucial to shop around and discuss your situation with potential lenders.