Is Bankruptcy My Best Option...Considering I want a FHA Mortgage Loan?

[Anonymous]

Hi Guys,

I'm new to the forum.  I originally attempted to file a Chpt 13 in Feb. 2014 but let it be dismissed because I was informed that I had to wait two years after I filed to obtain a mortgage.  Even though the BK was dismissed and never made is through the confirmation hearing it's still on my report and I'm told there is still a waiting period from the time it was dismissed.  There is also a couple car charge offs on the report, one from Go Finanial $6K (2013) and one GM Financial $10K (2013). 

My total debt is $28K including the cars.  Some legit and some that need to be disputed.  During my research for FHA & Mortgage Loans I found out that I will have to pay all deliquent items over $1K to obtain a mortgage.  Since the amount is so high total I'd like to do a Chpt 7 and wipe everything out but I dont want to have to wait 4 years to be able to get a Mortgage loan.  Rent with my family size is pretty steep.  I don't want to waste a lot of time trying to go throught the Disputes, GW, DV, etc. if in the long run the car charge offs will keep me from getting the mortgage. 

Is it worth trying to do the GW letters or should I just focus on the Chpt 13 and rebuilding?

I'd like to know your thoughts. 

[bstone]

I'm not sure where you heard four years to get a mortgage, but you can qualify for an FHA loan two years post discharge on a Ch. 7.  I believe there are some mortgage products which have a longer waiting period, but most people would find an FHA loan suitable.

As far as the charge off's and a mortgage, you would likely have to wait till they fall off (around 2020) or pay them off to qualify if you don't have them discharged in BK.  The banks don't want to see any sizeable debt which can ultimately be used to place a lein against your property.  Would Go Financial or GM use you for those amounts?  Unlikely.  But they can and if they do now they have a stake in your home.

Overall you will be able to buy a home sooner and with less out of pocket if you file Ch 7 (assuming you qualify) than if you try to let the accounts fall off your credit or pay them off.

[Anonymous]

Thanks so much for taking the time to respond.  I had called FHA and the representative said it was 2 years for Chpt 13 and 4 years for Chpt 7.  But I saw similiar information as provided by you on the mortgage forum.  I'm going to file and follow the guide "How to:  From Bk7 discharge to 700 in 24mths or less."  Realistically that is the best option.   

[TRC_WA]

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@Anonymous wrote:

Thanks so much for taking the time to respond.  I had called FHA and the representative said it was 2 years for Chpt 13 and 4 years for Chpt 7.  But I saw similiar information as provided by you on the mortgage forum.  I'm going to file and follow the guide "How to:  From Bk7 discharge to 700 in 24mths or less."  Realistically that is the best option.   

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Either way you'll have a BK on your report for 10 years... a Ch 7 or a dismissed Ch 13.

A discharged 13 falls off after 7 years.

[Anonymous]

FHA changed some rules back in August.  It is only 2 years post BK now from the discharge date, not filing date.  That is if there isn't a foreclosure included.  If there is a foreclosure included, I believe it is 4 years.  My husband will be 4 years post discharge in March.  We will finally be able to apply because he had a foreclosure. 

Per fha's website:

Chapter 13 Bankruptcy

FHA will consider appoving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee's written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability.

Chapter 7 Bankruptcy

At least two years must have elapsed since the discharge date of the borrower and / or spouse's Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable job.

[DaveInAZ]

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@Anonymous wrote:

FHA changed some rules back in August.  It is only 2 years post BK now from the discharge date, not filing date.  That is if there isn't a foreclosure included.  If there is a foreclosure included, I believe it is 4 years.  My husband will be 4 years post discharge in March.  We will finally be able to apply because he had a foreclosure. 

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Actually, FHA made other rule changes. From the Mortgage forum here on MYFico:BIG changes to Fannie Mae's policy regarding mortgages included in BK

Fannie Mae announced, effective immediately, that when a mortgage is discharged through a bankrupcy that the bankruptcy waiting periods would apply instead of the foreclosure waiting period. 

The official announcement is https://www.fanniemae.com/content/announcement/sel1410.pdf which states:

The Selling Guide has been updated to indicate that if a mortgage debt has been discharged through bankruptcy, even if a foreclosure action is subsequently completed to reclaim the property in satisfaction of the debt, the borrower is held to the bankruptcy waiting periods and not the foreclosure waiting period. Lenders must obtain documentation to verify that the mortgage debt in question was in fact discharged as part of the bankruptcy.

[StartingOver10]

Yes and to add to Dave's excellent post above, when you are IN a Ch 13 you can obtain a mortgage with FHA financing after 12 months of on time payments made in your Ch 13. You have to get approval from the trustee before you buy and mortgage, but it is very possible.

[Its_Me]

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@StartingOver10 wrote:

Yes and to add to Dave's excellent post above, when you are IN a Ch 13 you can obtain a mortgage with FHA financing after 12 months of on time payments made in your Ch 13. You have to get approval from the trustee before you buy and mortgage, but it is very possible.

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Just to clarify: While IN a chapter 13, it is possible to obtain FHA mortgage after 12 months of timely payments and trustee approval but once the chapter 13 is discharged, you have to wait another 2 years?

Seems odd that if one filed in Jan 2010 they could potentially get an FHA loan Jan 2011 but if one waits and is discharged in Aug 2014, they would have to wait until Aug 2016.

I appreciate any info on this requirment. Thank you.

[DaveInAZ]

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@Its_Me wrote:

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@StartingOver10 wrote:

Yes and to add to Dave's excellent post above, when you are IN a Ch 13 you can obtain a mortgage with FHA financing after 12 months of on time payments made in your Ch 13. You have to get approval from the trustee before you buy and mortgage, but it is very possible.

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Just to clarify: While IN a chapter 13, it is possible to obtain FHA mortgage after 12 months of timely payments and trustee approval but once the chapter 13 is discharged, you have to wait another 2 years?

Seems odd that if one filed in Jan 2010 they could potentially get an FHA loan Jan 2011 but if one waits and is discharged in Aug 2014, they would have to wait until Aug 2016.

I appreciate any info on this requirment. Thank you.

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My post above StartingOver10's post was about Ch7 and FreddieMac, which is a conventional mortgage (at least 20% down). FHA mortgages are typically less than 20% down with FHA insuring the mortgage for a fee tacked on top of your P&I payment. Here's the FHA guidelines regarding Ch 13:

"After Chapter 7 bankruptcy, (not to be confused with Chapter 13 bankruptcy rules) the borrower must wait out the FHA's minimum "seasoning" period. At the time of this writng, that period is two years "

"FHA rules allow a lender to consider approving an FHA loan application from a borrower who is still paying on a Chapter 13 Bankruptcy-but only if those payments have been made and verified for a period of at least one year."

- That 1 year waiting period while in Ch13 the only waiting period mentioned for Ch13, so no, I don't think you need to wait 2 years after Ch13 discharge. If you're thinking of buying a home & applying for a FHA mortgage, talk to a good mortgage broker who can verify that.