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FHA LOAN DURING CHAPTER 7 WITH W2 INCOME
I have a client who was approved for FHA with a different lender. She is in a Chapter 13 bankruptcy and has been paid on for 2.5 years. Approval must be obtained from the BK courts for the purchase. She has only W2s for 2019 and 2020 but doesn’t have tax returns. This lender is stating they need tax returns. Can you get this done without tax returns, w2s only? It’s not a self-employed situation.
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1 Reply
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FHA Loan with W-2 Documentations in Chapter 13 Bankruptcy
Your client’s Chapter 13 Bankruptcy did pose a new perspective to her as she had only W-2s worth of income for the past 2 years, which means that she did not have tax returns for the stated period. To help tackle this situation, here is what I recommend you do:
The other methods of approaching the guidelines as provided by FHA
Employment Documents: If tax returns are unavailable, W-2s are sufficient enough to prove employment status if the client worked in a salaried position. However, per FHA Guidelines, an entire 2 years of income must be earned and documented. So, whether or not this solution is accepted is up to each employee’s agreement.
FHA Requirement: It is important to note that each lender has internal policies, which may impact documentation requirements. Clients should be reminded that the lender may have deeper policies and regulations regarding tax requirements than those regulated by the FHA, which could be why they insist on having tax returns.
Aspect with regards to Chapter 13 Bankruptcy
Authorization: Since your client is under Chapter 13 Bankruptcy, purchasing a new house will require approval from the bankruptcy court, which adds a new set of requirements for the lender buying for this specific order.
Dependable Payment History: It is critical that the client show she has made timely payments in her Chapter 13 Plan, as this would support her case regarding managing additional payments.
Potential Solutions
Waiver Request: Where W2s are available and tax returns are compulsory according to the lender, such cases apply for a waiver request, with a TV or heater as such prof stable and verifiable. Lenders are usually agreeable to getting such non-self-employed income.
Other Sources: Some lenders allow methods other than W2 and 1099. They have started accepting alternate documentation and W2s, such as pay stubs, paychecks, and bank statements.
Client’s Bankruptcy Attorney’s Involvement: Bringing the client’s bankruptcy attorney into the picture might prove useful. They can ease the dynamics of dealing with the lender and address legal considerations that may be present when addressing income verification issues.
Dealing with Other Lenders
Other Non-Rural Lenders: Other approved FHA lenders have far fewer documentation and verification requirements. If your current lender remains adamant, looking for other lenders will make more sense.
W2 and 1099 Special Lenders: Some lenders deal with clients in difficult circumstances, such as bankruptcy. These lenders have a better grasp of the market for clients who apply for W2s only.
Submitting the tax returns may be difficult, but according to FHA policies, in some cases, W-2s can be used as the primary income documentation. If this is the case, your clients can continue working with the lender, request a waiver if necessary, and try different lending solutions. In addition, contacting and communicating with the bankruptcy attorney may improve the outcome’s success.