FHA Loan During And After Chapter 13 Bankruptcy
FHA Loans

Qualifying For FHA Loan During And After Chapter 13 Bankruptcy

This BLOG On Qualifying For FHA Loan During And After Chapter 13 Bankruptcy Was Written By Gustan Cho NMLS 873293

Borrowers can qualify for Qualifying For FHA Loan During And After Chapter 13 Bankruptcy.

  • Many of our viewers contact me daily and are told different answers by lenders with regards to the qualification requirements of Qualifying For FHA Loan During And After Chapter 13 Bankruptcy.
  • There are two sets of mortgage lending guidelines. The first and most important mortgage requirements in qualifying for FHA Loans is the FHA Guidelines set by HUD under HUD 4000.1 FHA Handbook which states the minimum FHA Mortgage Guidelines that all mortgage lenders need to follow in order for their FHA Loans to be insured by HUD.
  • The second type of mortgage requirements is called lender overlays which means that each individual mortgage lender can have lending guidelines that are above and beyond of FHA Guidelines.
  • This is called lender overlays.

What Are Overlays On FHA Loans?

Overlays are lending requirements that a lender implements and are not required by FHA. Here are examples of lender overlays compared to FHA Guidelines:

  • FHA requires that borrowers need a 580 credit score to qualify for a 3.5% down payment FHA home purchase.
  • Most lenders will not accept any borrowers who do not have at least a 620 credit score while some may not accept any borrowers with credit scores of under 640 FICO credit scores. Why are lenders requiring a higher credit score when FHA only requires a credit score of 580 FICO?
  • The reason lenders require higher credit scores than those required by FHA is because they have overlays on credit scores which means they do not feel comfortable just going with the minimum required by FHA.
  • There are many overlays lenders can have.
  • Another example of overlays is debt to income ratios.
  • FHA allows up to a back end debt to income ratio of 56.9% DTI.
  • However, most lenders will cap the debt to income ratio to 50% DTI.
  • The above is called overlays on debt to income ratios.

Overlays Qualifying For FHA Loan During And After Chapter 13 Bankruptcy

The United States of Housing and Urban Development or HUD is the parent of FHA, which is the Federal Housing Administration. FHA is one of the most popular loan programs in the United States where its mission is to promote home ownership to hard working Americans and has very relaxing credit and income requirements where it makes it possible for any American the opportunity to become a homeowner. Borrowers can qualify for FHA Loans with the following:

  • Bad credit
  • Credit scores down to 580 FICO
  • Debt to income ratio as high as 56.9%
  • 3.5% down payment on a home purchase
  • Borrowers do not have to pay outstanding collections or charge off accounts to qualify for FHA Loans
  • Down payment can be gifted 
  • No closing costs because FHA allows up to 6% sellers concessions by home sellers for buyers to be able to use it for closing costs
  • Borrowers with prior Chapter 7 Bankruptcy can qualify for FHA Loan two years from discharged date of Chapter 7 Bankruptcy
  • Borrowers with prior Foreclosure, deed in lieu of foreclosure, and short sale can qualify for FHA Loan after meeting a three year waiting period
  • Borrowers with a Chapter 13 Bankruptcy can qualify for a FHA Loan one year into the Chapter 13 Bankruptcy Repayment Plan
  • Borrowers with a Chapter 13 Bankruptcy discharge can qualify for a FHA Loan with no waiting period after the Chapter 13 Bankruptcy discharged date.

A substantial percentage of my borrowers are folks who were told that they do not qualify Qualifying For FHA Loan During And After Chapter 13 Bankruptcy discharge and had to wait one or two years after the discharged date of their Chapter 13 Bankruptcy. For example, Chase Bank will not do any Chapter 13 Bankruptcy mortgages until the discharged date of the Chapter 13 has been seasoned for at least one year. Other banks and lenders want borrowers to wait two years after the Chapter 13 Bankruptcy discharged date. This is not HUD’s requirement but a lender overlay Chase Bank or other lender has. The Gustan Cho Team at Nationwide Mortgage & Realty LLC has no overlays on borrowers qualifying for Qualifying For FHA Loan During And After Chapter 13 Bankruptcy. Borrowers can qualify for FHA Loans after a Chapter 13 Bankruptcy discharged date with no waiting period.

Qualifying For FHA Loan During Chapter 13 Bankruptcy Repayment Period

Borrowers can qualify for a FHA Loan one year into a Chapter 13 Bankruptcy Repayment Period.

Here are the requirements for borrowers who need to qualify for a FHA Loan during their Chapter 13 Bankruptcy Payment Period:

  • 12 months of timely payments needs to be made to their creditors under the Chapter 13 Bankruptcy Payment Plan.
  • The approval of the borrower’s Chapter 13 Bankruptcy Trustee is required which should be no problem. 
  • Qualifying For FHA Loan During And After Chapter 13 Bankruptcy and if the discharged date has not been seasoned for two year, the file needs to be manually underwritten.
  • All manual underwriting requires verification of rent.
  • Verification of rent requires 12 months of canceled rent checks and rent payments needs to be timely.
  • If rental payments has been made online, then 12 months of online bank statements showing the rental payments been transferred from renter’s bank account into landlord’s bank account needs to be provided.
  • If borrower has been renting from a registered property management company, then a VOR, Verification Of Rent, FORM provided by lender needs to be signed and dated by the property management company manager and/or representative.
  • The Gustan Cho Team at USA Mortgage, a division of DAS Acquisition Company LLC NMLS 227262 has no overlays on Qualifying For FHA Loan During And After Chapter 13 Bankruptcy and other loan programs.

If you have been told that you do not qualify for a Qualifying For FHA Loan During And After Chapter 13 Bankruptcy due to their lender overlays, please contact Gustan Cho NMLS 873293 of The Gustan Cho Team at USA Mortgage at 262-878-1965 or text Gustan on his cell at 262-716-8151. You can also email us at gcho@gustancho.com. USA Mortgage is a five star full service mortgage company licensed in multiple states with no overlays on government and conventional loans. We close most of our loans in 21 days or less.

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