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Mortgage question

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Mortgage question

Hello all.  Long time lurker, first time poster...

 

I have a question regarding qualifying for a mortgage.

 

I was involved in a divorce that was finally dissolved in June, 2011.  Part of my divorce decree stated that I would sign a quit-claim deed releasing my ownership in the marital home, to my ex.  At that point, she was supposed to go through with refinancing, however, did not.  She purposely got behind on mortgage payments to qualify for a hardship refinance.  Unfortunately, this ruined my credit, and as a result of several months of delinquent payments with no end in sight, to stop the bleeding, I filed Chapter 7 bankruptcy to rid myself of the financial aspect of the loan, since she did not do so per our agreement.  The Ch7 was discharged in May, 2012.  So, here is where my question comes in...

 

I understand FHA requires 2 years of clean credit after a Chapter 7 before you can apply for a mortgage.  However, I've also heard that if you include a mortgage in that Chapter 7, or you have a foreclosure, it is 3 years.  Because I have documented proof that my ex was supposed to refinance within 30 days of me signing the quit-claim deed, and did not, do I have a leg to stand on regarding applying in 2 years, or am I going to be required to wait the entire 3?  I have met someone new since the divorce was finalized, things have been going great, and we are planning on getting married in the fall.  After the expense of the wedding is over, our next focus would be a house next summer (2014).  However, this is going to cause an issue if we have to wait 2 more years because of the BK with the mortgage....ugh!

 

My fiancee's credit is spectacular...she's in the 800s across all bureaus.  1 year out of Ch7, I am in the mid 600s.  I know she could qualify for a mortgage on her own (she makes about 40k), however, Ideally, we'd like to use both of our incomes as part of the mortgage process to qualify for more house (I make 65k).

 

Long story short....can I get a mortgage next summer (2014), or am I stuck waiting until 2015 because of the mortgage included in BK7 in 2012?

Message 1 of 9
8 REPLIES 8
foofighter74
Established Contributor

Re: Mortgage question

The short answer is yes.  You just have to find a lender that does not have really strict guidelines.

 

FHA rules state that essentially, if a home goes to foreclosure, you have to wait 3 years.  However, there is nothing in the FHA guidelines that says simply including the home in a bankruptcy is the same as a foreclosure.  In fact, our lender specifically called someone from HUD to verify that before we were ever approved. There are lenders who DO consider including a home in a CH. 7 with no reaffirmation the same as a foreclosure, but it's not an FHA rule.

 

My wife was in a similar situation you are in, except that the home she used to share with her ex did not go into foreclosure...her ex is still living there and making payments.

 

Regardless...there is an exception in the FHA handbook that specifically deals with divorce---by itself, divorce is not an exception to the 3 year foreclosure rule. HOWEVER....if in your divorce decree, it states that you had to surrender the home to your ex, and the house was current at the time, then you are still eligible for an FHA loan.  The problem would be in finding a lender that doesn't have its own overlays because some lenders may still not grant a loan even if you're technically eligible.  I would look for a credit union or a bank that isn't going to sell the loan.  This way, they don't have to worry about getting stuck with a mortgage they can't sell because a potential buyer is worried about the foreclosure.

 

My wife's ex was supposed to refinance the HELOC that she was on (she was not listed on the original mortgage) and never did.  He's trying to do it now, 2 years after the fact.  Regardless...your situation is similar to ours except that your old home went into foreclosure and my wife's did not.

 

Again, technically, you're still eligible for an FHA loan.  You're just going to have to find a lender who is aware of the FHA guidelines and doesn't specifically deny loans in this case. 

 

 

Message 2 of 9
MovingForward_2012
Valued Contributor

Re: Mortgage question

I think you have a leg to stand on but you may have to go to multiple lenders before you find someone that will work with you. Sometimes rules are bent to allow applicants with a BK or foreclosure if it was due to divorce, severe illness, or death.
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Message 3 of 9

Re: Mortgage question

Thanks for the reply.  As far as I know, the home NEVER went into a foreclosure state, but she was 90-120 days late at a couple points.  I guess if that's considered a foreclosure, than it will make things more difficult.  I was hoping the quit-claim would help in that regard, and make it a much simpler process, as the lates didn't happen until after that point. 

Message 4 of 9
foofighter74
Established Contributor

Re: Mortgage question

I'm sorry, I assumed the house went into foreclosure.  If we are simply talking about late payments, well, you weren't responsible for the payments once you were divorced.  The debt was removed by filing bankruptcy, but the late payments themselves happened after your divorce.  Yes, you were still on the mortgage...and the mortgage company certainly had a right to expect payment from you as well...but based on FHA rules, as long as that happened after the divorce decree was issued stating you had to deed your ownership back to your ex, you're fine...essentially, by the time you apply, your lates will be more than a year old.  This doesn't mean you'll get granted a loan, i'm just saying you'll be eligible and there won't be any need for rules to be bent in any way.  A lender would simply need to follow FHA guidelines.

Message 5 of 9
DallasLoanGuy
Super Contributor

Re: Mortgage question


@IHaveNoIdeaWhatMyNameIs wrote:

Thanks for the reply.  As far as I know, the home NEVER went into a foreclosure state, but she was 90-120 days late at a couple points.  I guess if that's considered a foreclosure, than it will make things more difficult.  I was hoping the quit-claim would help in that regard, and make it a much simpler process, as the lates didn't happen until after that point. 


in foreclosure or not, 120 days is the same as foreclosure to lenders.

 

however, if you prove it was paid on time when you lived there, i bet you could get an exception.

 

your lender needs to be good at this kind of stuff. not every 'yes man' will make this happen for you

 

Retired Lender
Message 6 of 9
foofighter74
Established Contributor

Re: Mortgage question


@DallasLoanGuy wrote:

 

your lender needs to be good at this kind of stuff. not every 'yes man' will make this happen for you

 


We had to try a couple before we found people that really knew what they were doing.  And weren't afraid to look into things and make some calls.  Some people just want the easy loans, they don't want to work to help people out.

Message 7 of 9

Re: Mortgage question

So long story short, it's not going to be easy, but in theory should be doable it sounds.  Well, that helps ease some stress!  Thanks for the feedback!

 

Now my next question....since I have 1 year left before my Ch7 is 2 years post discharge, does it make sense to start looking into potential brokers/lenders now, or should I hold off till early next year?  Being through the mortgage process once, I realize it isn't a 5 minute ordeal, but since I've never dealt with a situation like mine before, I wasn't sure if getting a jump on things would make a difference, or if it's pointless at this juncture.

Message 8 of 9
foofighter74
Established Contributor

Re: Mortgage question

You have plenty of time to do that early next year. 

Message 9 of 9
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