HUD Chapter 13 Bankruptcy Guidelines On FHA Loans

HUD Chapter 13 Bankruptcy Guidelines On FHA Loans

HUD Chapter 13 Bankruptcy Guidelines allow homebuyers and homeowners to qualify for an FHA loan during Chapter 13 Bankruptcy repayment plan with trustee approval. It needs to be a manual underwrite. The borrower can qualify for an FHA home purchase loan, an FHA rate and term refinance, or an FHA cash-out refinance mortgage.
In this article, we will go over the differences between trying to purchase a home while currently in a Chapter 13 Bankruptcy versus trying to purchase a home after a Chapter 13 Bankruptcy.

Differences Between Chapter 7 Versus Chapter 13 Bankruptcy

Differences Between Chapter 7 Versus Chapter 13 Bankruptcy

To begin with, it is a good idea to know the HUD Chapter 13 Bankruptcy Guidelines. Even before that, we need to go over the differences between Chapter 13 Bankruptcy and Chapter 7 Bankruptcy. Quite frankly, if you don’t know the difference between the two, it will be hard to get a grasp of the HUD Chapter 13 Bankruptcy Guidelines. Now let’s be honest even the best of us have gone through some tough times and have got ourselves in a bit of financial trouble. Now, if you recognize you are in trouble and claiming bankruptcy can help you get on your feet, then this is what you have to do

HUD Chapter 13 Bankruptcy Guidelines Versus Chapter 7 Bankruptcy

Before we get into the HUD Guidelines For Chapter 13 Bankruptcy, it is good to know the differences between Chapter 7 and Chapter 13. When we look at Chapter 7, you can call this “pushing the reset button” so to speak as it takes all of your debts and wipes them out and you are not liable for paying anything owed on them.

How Is Chapter 7 Bankruptcy Discharged?

When looking to file for Chapter 7, a bankruptcy trustee is going to evaluate your financial situation and income versus the debts you have in your name. If it is determined that you don’t make too much money and that your debts outweigh your income, you can proceed given that you have now passed the “Means Test”. You can include unsecured debt like credit cards, auto loans, payday loans, mortgages, or anything that isn’t a student loan as they are exempt from Chapter 7 filings.

HUD Chapter 13 Bankruptcy Guidelines On Repayment Plan

Now unlike Chapter 7, a Chapter 13 Bankruptcy will still require you to pay a portion of your debts back to the creditors. This is why this bankruptcy filing can be described as a bankruptcy repayment plan. After Chapter 13 is filed, a Chapter 13 Bankruptcy Trustee will be assigned to you who will oversee the process and determine your repayment plans with the creditors.

Timely Payments During Payment Plan is Crucial

Normally these plans are income-based and a portion of your income will be determined that can be allocated to your debts. Then on a monthly basis, the trustee will release the proper monthly funds to the creditors. These plans are typically in a length of 36-60 months or 3 to 5 years in length. After the repayment period has ended, any remaining debt owed to the creditor is written off and you are not responsible for paying this. The key behind negotiating terms with creditors is knowing that you will not be required to pay 100% of the balance

HUD Chapter 13 Bankruptcy Guidelines On FHA Loan Requirements

HUD Chapter 13 Bankruptcy Guidelines On FHA Loan Requirements

Now if you have recently gone through a Bankruptcy, whether it be a Chapter 7 or a Chapter 13, you can be fairly certain that your credit scores will have felt the effects of this and that you will need a loan program that is beneficial to those with lower credit scores.

Conventional Loan Waiting Period After Bankruptcy

Now depending on the time since the discharge of your bankruptcy, you will probably not be able to get a Conventional Loan as the mandatory waiting period is 4 years while for an FHA Loan the guidelines state that you need to be just 2 years after a Chapter 7 Discharge and the day after your repayment plan for Chapter 13. These are the reasons why FHA loans are so popular for borrowers after derogatory items in their credit history.

FHA Loan Requirements after Chapter 7 Bankruptcy

The problem for borrowers with Chapter 7 Bankruptcy is that no matter what they are required to wait the mandatory 2 years before they can apply for a mortgage again. There is no way to get around this and this waiting period will be enforced by all FHA Lenders.

Chapter 13 Bankruptcy Guidelines

Now in terms of Chapter 13 Bankruptcies, you will see different guidelines depending on the lender that you are working with. Now by the rules, FHA Guidelines state that there is not a mandatory waiting period after the repayment period of Chapter 13 is discharged. However, you will find lenders who require a 1 to 2 year mandatory waiting period. This is not an FHA Guideline but instead a Lender Overlay which we have gone over in the past.

Agency Guidelines Versus Lender Overlays

If you aren’t familiar with Lender Overlays, these are additional guidelines that lenders put on their borrowers to ensure there is less risk involved with the loan. Now if you have run into this situation, you need to contact us right away as we only work with lenders who do not have lender overlays and can do their loans per HUD Guidelines.

Qualify For An FHA During Chapter 13 Bankruptcy

Qualify For An FHA During Chapter 13 Bankruptcy

Now getting back to the HUD Chapter 13 Bankruptcy Guidelines it states that you can get into a new mortgage during your repayment period of the Chapter 13 Bankruptcy. If you can obtain approval from your bankruptcy trustee and you have made at least 12 payments on time to your creditors, you can be considered for an FHA Loan. The one caveat with this is that you will need to go through a manual underwrite which means an actual underwriter will go over your entire loan file before issuing approval for you to obtain a mortgage.

No Waiting Period Requirements After Chapter 13 Bankruptcy Discharge

The other way to obtain an FHA Loan with a Chapter 13 Bankruptcy is to wait until your discharge date. The day after your discharge date, you are allowed to get a mortgage per FHA Guidelines. There is no mandatory waiting period associated with Chapter 13 and after 60 months of your repayment plan, the least you can do is get another mortgage since you have shown financial stability in sticking to your plan with the creditors

Conventional Loan With Chapter 13 Bankruptcy: What Is It?

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.

Conventional Loan With Chapter 13 Bankruptcy: Waiting Period?

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.

Conventional Loan With Chapter 13 Bankruptcy: Conventional Qualification

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.

Conventional Loan With Chapter 13 Bankruptcy: Let’s Get Your Loan Started!

Conventional Loan With Chapter 13 Bankruptcy

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!

HUD Chapter 13 Guidelines: FHA Loans

In this article, we are going to look at the 2022 HUD Chapter 13 Guidelines which will only be dealing with how they are treated for FHA Loans.  The reason we will only be looking at FHA Loans is for the fact that HUD (United States Department of Housing and Urban Development) is the parent of FHA.  FHA or the Federal Housing Administration is not a mortgage lender, but rather a government agency that falls under the watch of HUD and creates and sets the FHA Guidelines and in particular for this article, the guidelines dealing with 2017 HUD Chapter 13 Guidelines.
Within the 2022 HUD Chapter 13 Guidelines, it treats the Chapter 13 Bankruptcy accordingly.

–          Guidelines state the requirements for borrowers who are in progress in a Chapter 13 Bankruptcy repayment plan
–          Guidelines state the requirements for recently discharged Chapter 13 Bankruptcy

HUD Guidelines: Chapter 7 and Chapter 13

Yes this article is with regards to the 2022 HUD Chapter 13 Guidelines, but it is good to mention the guidelines and timeline dealing with both Chapter 7 AND Chapter 13.

–          Chapter 7 Bankruptcy: When you go through a Chapter 7 Bankruptcy, this is where you can wipe out all of your debts except for student loan debt, this is also known as a total liquidation.  This is just like having a rest button on your credit and everything will go away so to speak.  If it is determined that your income and debts are up to standards, then you can proceed with a Chapter 7 filing.  After your filing is reviewed, within 90 days you will receive confirmation of Discharge which means all included debts in the bankruptcy is no longer your responsibility.  From this Discharge Date, you will have to wait for 2 years in order to qualify for an FHA Loan.  Also, after discharge you cannot have any late-payments when trying to re-establish your credit.

–          Chapter 13 Bankruptcy: A Chapter 13 Bankruptcy occurs when you’d like to repay your debts but can’t afford to facilitate all of them.  A bankruptcy trustee will be appointed to you who will go over your gross income and determine how much you can afford monthly to pay your creditors.  The plan is normally for a period of 60 months and whatever balances remain on the debt after 60 months are wiped out.  If you are looking for an FHA Loan and are currently in a Chapter 13 Bankruptcy, you can get a loan as long as the Bankruptcy Trustee approves this new debt.

HUD Chapter 13 Guidelines: Ways To Qualify

According to 2022 HUD Chapter 13 Guidelines, there are 2 ways for you qualify for an FHA Loan as a Chapter 13 Bankruptcy borrower:

  1. If you are currently in a Chapter 13 repayment plan, you can qualify for an FHA Loan as long as you are at least 12 months into your repayment plan and is trustee approved.
  2. If your Chapter 13 Bankruptcy has been discharged, you are eligible to obtain a loan the day after your discharge, however, most lenders will implement a waiting period before they will give you a loan even though 2022 HUD Chapter 13 Guidelines says otherwise.

HUD Chapter 13 Guidelines: In Closing

Even though the 2022 HUD Chapter 13 Guidelines says that there is no waiting period for a Chapter 13 Discharge, if you have not waited 2 years, you can always get an FHA Loan with a manual underwrite as long as you have a VOR or Verification of Rent.  Dealing with a Chapter 13 Bankruptcy and obtaining an FHA Loan could be a tricky subject to navigate, but this is where we come into play for you.  Here at Loan Consultants we are dedicated to helping individuals get FHA Loans during or shortly after a Chapter 13 Bankruptcy.  You can reach us at 888-900-1020 or contact@loanconsultants.org.

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