Recent chapter 13 bankruptcy filers might have trouble getting approved for a conventional mortgage. Depending on the type of mortgage you need, the majority of lenders will ask you to wait up to two years.
After or during a chapter 13 bankruptcy, you can apply for a mortgage to buy a house without having to wait two years.
What is a Chapter 13 Bankruptcy?
In a chapter 13 bankruptcy, the debtors agree to pay the remaining balance of their debt over the course of three to five years by making the predetermined monthly payments.
The payments are typically garnished out of the paycheck to the trustee who from there will disburse the appropriate amount each month to the creditors. The garnishment of wages is why a Chapter 13 bankruptcy is sometimes called the “wage earner’s plan”.
Lenders may assume that people who choose to file for chapter 13 bankruptcy are prepared to handle the responsibility of owning and paying for a home.
Mortgage After a Chapter 13 Bankruptcy Discharge
Most mortgage programs stipulate a set waiting period before you can apply for a mortgage following a chapter 13 bankruptcy discharge. According to the chart below, the waiting period can range from one to two years depending on the type of mortgage.
There are two mortgage programs where the waiting period is waived. The first is a subprime loan, and the second is an FHA loan.
Depending on your credit score, a subprime loan will probably require a larger down payment of at least 15–25% or more. You may be eligible if you are a W2 employee or a self-employed person who cannot prove their income. The terms of this type of loan, however, are not ideal, and the larger down payment is beyond the means of the typical home buyer.
For those who recently had a Chapter 13 discharge, FHA loans are the ideal option. With just a small down payment of 3. 5%, you should be able to buy a house or, if you already own one, refinance. The competitive interest rates and ability to obtain an FHA loan even with low credit scores are another advantage.
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After a Chapter 13 bankruptcy discharge, the time it takes to apply for a mortgage is depicted in this chart.
Mortgage Before a Chapter 13 Bankruptcy Discharge
Before your chapter 13 bankruptcy has been discharged, you can apply for an FHA loan. Finding a lender willing to start the process before the customary waiting period of one year following the Ch13 discharge date is crucial.
While the majority of lenders won’t let you apply for an FHA loan just yet, the few that will demand that you first make at least 12 on-time bankruptcy payments.
You must have built a solid credit history, have made 12 on-time bankruptcy payments, and get the bankruptcy trustee’s approval before you can apply for a mortgage.
Mortgage after a Chapter 13 Bankruptcy Dismissal
If your Chapter 13 bankruptcy has been dismissed, it indicates that you either failed to adhere to the payment plan or broke one of the other conditions, causing your chapter 13 bankruptcy to be invalidated. When requesting a new mortgage, this is not seen favorably.
The waiting period after a Chapter 13 dismissal will typically be the same as the waiting period after a Chapter 7 bankruptcy. Some people immediately after the Chapter 13 dismissal file for Chapter 7 bankruptcy. If this occurs, you would have to wait until two years after being fired to submit an application for a mortgage.
How to Qualify for a Mortgage after a Chapter 13 Bankruptcy
The following criteria must be met in order to be approved for a mortgage following a Chapter 13 bankruptcy:
You can obtain an FHA pre-approval so you can purchase a home with the assistance of one of the lenders in our network of FHA lenders.
Which Lenders Can Finance a Home After a Chapter 13 Discharge?
After a chapter 13 discharge, you can finance your home with any lender who provides FHA loans. But the majority of lenders won’t grant an exception to the usual waiting period.
The majority of national banks probably won’t approve this exception for the waiting period. Consequently, we will assist you in locating a lender that can accept your most recent Chapter 13 bankruptcy. Simply complete this short quote form.
What is a bankruptcy trustee?
The bankruptcy trustee is in charge of monitoring your compliance with the bankruptcy payment plan. Every time your payment is deducted from your paycheck, he or she also ensures that the creditors are paid monthly in accordance with the agreement. Your eligibility for a new mortgage will ultimately be determined by this bankruptcy trustee, who will also grant that approval.
What will disqualify you from an FHA loan?
A high debt-to-income ratio, bad credit, or a lack of funds to cover the required down payment, monthly mortgage payments, or closing costs are the three main things that can prevent you from getting an FHA loan.
How long after Chapter 13 Can I buy a house conventional?
After a chapter 13 bankruptcy has been discharged, or four years after a dismissal if your bankruptcy was brought on by financial mismanagement, you must wait two years before applying for a conventional mortgage that complies with the guidelines set forth by Fannie and Freddie, which many lenders follow.
How can I buy a house after Chapter 13 discharge?
If you use an FHA, VA, or USDA loan, there is no waiting period after being discharged from Chapter 13 bankruptcy and you can apply for a mortgage as soon as one year after filing. But while you’re in Chapter 13, conventional loans won’t be approved, and they demand a two-year waiting period after discharge.
What is the FHA waiting period?
The absolute minimum waiting period is six months, and those who have owned their homes for less than a year are typically subject to it. Those who have owned their property for a year or longer must have made payments on time for the 12 months prior to applying for a mortgage loan.