Please help - extremely confused about 2-3 year waiting period for new FHA loan after Ch7 stay & pay

[Anonymous]

I am unsure if I should have posted this on the bankruptcy board or mortgage board - sorry.

Here's my "simple" scenario. I have spent many hours searching, but still remain confused and unable to find a clear answer.

1) I plan to file chapter 7 within a few months.

2) I will NOT be reaffirming my mortgage. I estimate that the home is worth about 30k less than what I owe - however, I do like the home and wish to remain living here for now.

3) I do not have a 2nd mortgage/HELOC.

4) I have never missed or even had a late mortgage payment, and will continue to keep current throughout the bankruptcy process.

5) Post discharge, I will continue paying the morgage and keeping it current.

6) In 2-3 years, I would like to buy another home, and stop paying the discharged mortgage.

7) I live in the state of Louisiana, if it matters.

I am very confused because I have read that in order to get another FHA loan, for example, in addition to the 2 years from discharge date waiting period....if I keep my mortgage current post-discharge, the deed will obviously never transfer and it'll never be forclosed until I stop paying...and that I would need to stop paying, wait for forclosure, THEN wait another 3 years??? So, the rule is actually the LATER of 2 years from discharge date or 3 years from the foreclosure/DIL? So, in actuality, I'd be delaying/hurtng my chances of purchasing another home until I finally stop paying on the discharged mortgage and let them forclose?

Please clarify!

[0REDSOX7]

It sounds complicated, but is actually pretty simple.

If, at any time after a BK (not reaffirmed), the deed transfers back to the bank (Deed In Lieu, Foreclosure), then your eligibility for an FHA loan is two years from that date, not discharge date. Given that some banks can take years to foreclose, this can be a problem.

If you sell your house via normal channels (for sale) and the deed is transferred to someone other than the bank (the new buyer), your eligibility is two years from the date of discharge. Any proceeds from selling your house that are over the remaining balance are yours to keep.

I've read it is now three years from discharge instead of two, but the above if valid. Avoid and deed in lieu or foreclosure and you're good to go.

FHA even as a program known as the "Back To Work" program that would allow an FHA loan as quick as one year post discharge - pending certain guidelines are met. MyFICO user EZDriver did it and will probably chime in here.

Hope that helps!

[Anonymous]

So, this rule would only apply if I attempted to get another FHA mortgage? For example, if I try and get a conventional 20% down mortgage, they would likely go by the original BK7 discharge date, and not the date when the deed transfered back to bank? Thank!

[StartingOver10]

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@Anonymous wrote:

So, this rule would only apply if I attempted to get another FHA mortgage? For example, if I try and get a conventional 20% down mortgage, they would likely go by the original BK7 discharge date, and not the date when the deed transfered back to bank? Thank!

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^^^NO. That is incorrect, the wait period for a conventional loan is longer. The disposition of the previous home (your current home) has everything to do with what type and when you can get a new mortgage loan.

This rule applies to conventional loans too.  If you file Bk and then let your home f/c the clock starts from the later of the two derogatory events (f/c) like you mentioned in your first post.

For FHA loans the wait period is a minimum of 3 years (except for Back to Work) from the latest derogatory event (the f/c).

For conventional loans the wait period is 4 to 7 years from the latest derogatory event depending upon your down payment.

It really would be better for you to investigate the value of your home in a couple of years when you plan to move. It could very well have positive equity then you could sell it in the normal way and only have to wait the two years from the bk + you would get the $$ in your hands after you sold it. Win-win all the way around. Don't assume market value two years from now will be the same as today. Markets change. Value is time specific.

[Anonymous]

Let's say I keep the discharged mortgage current for a few years until I'm ready to move... if our credit scores and income levels increase enough to where we could qualify for a mortgage on a new home without having to sell our old home... is the fact that the deed never transfered back to the bank on the discharged, but current, mortgage going to hurt us?

I guess what I'm basically asking now is will this plan work?

1) Keep old mortgage current throughout bankruptcy

2) Do not reaffirm

3) Keep current AFTER discharge

4) Wait the required 3 years from discharge for another FHA loan

5) Assuming credit score, income, etc meet the requirements, qualify for new mortgage

6) Once I am in the new home, finally stop paying the previously discharged mortgage and allow them to foreclose

Will this likely work? Or will the new lender care?

Thanks again for your help

[StartingOver10]

If you only have the Bk and are still current in your payments, then the waiting period is 2 years from the Bk discharge date.

However, the new lender will want to know what you are going to do with the current residence: sell it or rent it out.  What the new lender will be looking for is signs of what is called a "buy and bail". You do not want to do that -  DO  NOT show any buy and bail signs or you won't get the new loan.

If you rent it out, then you will need to have a lease to show and show actual rent receipt payments from the tenant. They may also require you to have equity in your current home to get the new one.

Your best bet is to sell it before you buy the next one - then you have taken care of the issue completely and all you have to do is provide the HUD1 showing the sale and the proceeds (if any).  If you sell it short then that is a new derog and the start date starts from the date the deed transferred from you to the new buyer and then that wait period iis 3 years. 

[ezdriver]

I have two buyers who have recently financed new mortgages ONE YEAR post discharge ... with 20% down so LTV is 80%. These are portfolio loans with local lenders.

I am a sales counselor with a national builder. Our inhouse lender is stating [for FHA mortgages] 3 yrs from foreclosure and 2 yrs from bankruptcy discharge. For conventional loans, the wait period is much much longer.

As posted above, I bought a new house and got an FHA mortgage just 1 yr post ch7 discharge ... using the Back To Work FHA program.

[StartingOver10]

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@Anonymous wrote:

Let's say I keep the discharged mortgage current for a few years until I'm ready to move... if our credit scores and income levels increase enough to where we could qualify for a mortgage on a new home without having to sell our old home... is the fact that the deed never transfered back to the bank on the discharged, but current, mortgage going to hurt us?

I guess what I'm basically asking now is will this plan work?

1) Keep old mortgage current throughout bankruptcy

2) Do not reaffirm

3) Keep current AFTER discharge

4) Wait the required 3 years from discharge for another FHA loan

5) Assuming credit score, income, etc meet the requirements, qualify for new mortgage

6) Once I am in the new home, finally stop paying the previously discharged mortgage and allow them to foreclose

Will this likely work? Or will the new lender care?

Thanks again for your help

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^^^Just so you are aware - the plan you propose is called a "buy and bail". It means buy the new one and bail on the old one by stopping payments. The u/w's know what to  look for and the plan you describe is exactly what they check for when you make application for the new loan so you will more than likely get denied a new mortgage. After all, if you bail on your current mortgage, then what is to prevent you from doing the same thing to the new mortgage? (That's why they check).

The way to  avoid being put into that catagory is to have your home sold before the application for a new loan.