Just as we talked about the FHA Guidelines when dealing with a Chapter 13 Bankruptcy, in this article we are going to look into a 2017 Conventional Loan With Chapter 13 Bankruptcy. Now yes, the FHA Guidelines may be more lenient in cases like this, but if it is a conventional loan you are after, then you are in the right place and we will guide you along the way as we go into detail about the guidelines. The first thing you need to understand is what exactly is a Chapter 13 bankruptcy and what is the difference between a Chapter 13 and a Chapter 7 Bankruptcy filing. There is a good chance that you may have gone through a bankruptcy in your past or will have to go through one later in life and knowing the differences can help you develop a strategy for choosing which route is right for you. Since this article is focusing in on Chapter 13, we will tackle that one first and you need to know that a Chapter 13 is based primarily on a repayment plan for your creditors. After you file your Chapter 13 Bankruptcy you will be assigned a trustee who will oversee your file and work with your creditors to determine a fair repayment plan that is developed using your income. After it is determined how much you can afford to pay, you are then required to make payments for 60 months, and after the payments are made, any debt that is left is written-off and your debt is satisfied. This is a lot different than a Chapter 7 Bankruptcy or what is known as a total liquidation. After filing for Chapter 7 Bankruptcy you will list all your income and all your debts. If approved, all your debts are instantly wiped out and creditors can’t come after you for the debts any more since they are included in a bankruptcy. For a Chapter 7 you can claim credit cards, auto loans, and even mortgages as debts you would like to release. This will tremendously affect your credit score but you will no longer have monthly debt you are responsible for. Now you cannot enter into a Chapter 7 within 7 years after your last Chapter 7 and this is so that the “strategy” of starting over isn’t abused.
As with most loans you are looking to obtain after a derogatory event in your credit history, there is a mandatory waiting period that you are going to need to abide by and for different programs it varies. However, when you are dealing with Fannie Mae and Freddie Mac for Conventional Loans, you are looking at a mandatory 2 year waiting period that begins after the Chapter 13 Bankruptcy is discharged. So to do the simple math on a Chapter 13, if you have recently started your 60 month repayment term, you need to go through your 5 year repayment plan plus an additional 2 years after discharge for a total time of 7 years between bankruptcy and home ownership. Now on the flip side, if you went through a Chapter 7 Bankruptcy you will need to wait 4 years after the discharge date of your bankruptcy. In most instances you will actually wait less time by going through a Chapter 7 than a Chapter 13. However, if you do not want the stigma of a Chapter 7 Bankruptcy on your credit report, then a Chapter 13 is the way to go.
If you are looking to for a 2017 Conventional Loan With Chapter 13 Bankruptcy you will need to know all the qualification guidelines for this type of loan and we will go through those items below:
– As mentioned earlier with the mandatory waiting periods, you are going to need to wait for 2 years after the discharge of your Chapter 13 Bankruptcy. You will only receive a discharge date after you have satisfied the terms of your repayment plan 100%. This means you will need to make all your payments and then be subsequently released from any remaining debt the creditors have on their books.
– As with all loan programs out there, most of the time you are going to run into a required minimum credit score needed in order to get a loan approval. As with all other Conventional Loans the minimum credit score needed to secure a Conventional Loan is a 620 FICO. Now you may run into lenders who will require more than a 620 FICO and this is because they are enforcing their Lender Overlays. Lender overlays are additional requirements a lender puts into place on top of minimum loan program guidelines. What these additional requirements do is minimize the risk taken by making sure borrowers have higher credit scores.
– The final qualification guideline with a 2017 Conventional Loan With Chapter 13 Bankruptcy is that of the debt to income ratio. As with most of the Conventional Loan products out there, there is a maximum debt-to-income ratio that can be had and that is 45%. Yes, there are Conventional Loans that can go a little bit higher than this, but when talking after a Chapter 13 mortgage, you are looking at a hard line at 45%. This means your mortgage payment plus all other monthly debts have to equal less than 45% of your gross monthly income. If you make $5,000 gross per month, you are only allowed to have $2,250 in total debt after your new mortgage payment.
If you are looking for a 2017 Conventional Loan With Chapter 13 Bankruptcy you will need to make sure you have waited the mandatory 2 years since your discharge, have at least a 620 FICO, and a debt-to-income ratio of less than 45%. If you have satisfied all these qualification guidelines, then you should be good in moving forward with your home loan journey. If you want to make sure you work with a lender that doesn’t have any lender overlays and can lend to the minimum requirements, you are in the right place. Here at Loan Consultants we only work with lenders who have the same mindset we do when lending to borrowers. If you’d like to get your file started, please reach out ASAP and we can get it done for you. I look forward to hearing from you at 888-900-1020. Please feel free to reach out any time, day, night, weekends, and holidays as we are always here to serve our customers!
Gustan Cho Associates
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