Reply
Frequent Contributor
grassfeeder
Posts: 316
Registered: ‎03-01-2012

Preparing for mortgage after Ch7 BK - expert, help me out.

I'll try and outline this the best I know how.  I'm a designer, not a numbers guy so I really put lots of trust into the professionals.

 

Ch.7 Discharge 10/31/12

 

I did NOT give up my home during the BK.  I had a 1st and 2nd HELOC under the same lender.  I settled the 2nd HELOC after the BK for litterally peanuts.  I have not been late on any payments in maybe 4 years on this home.  So just the primary mortage remains.

 

Pay-off is $144k

Their is a lien via the HOA for $22k as well that I am not liable for via the BK but I know will need to be settled or paid through the sale of the home.

 

Current home value - I should be able to pull $190k during a sale of it.  Either way, I hope to pull $20k in equity out of this home when all is said and done for future down payment.  I should be able to sell this quickly with our market.  Realtors are cold calling me to sell.

 

Since BK, I have rebounded nicely (see scores and credit lines in my signature).  I never have a balance of more than $100 on any of my CC's - balance on 1, PIF the others.  1 car loan that I could pay off but am letting it work for me as an installment loan right now.  It's cheap, $315/month.

 

I am self employed since September of 2011 and continue to grow my business.  My annual income has grown from $55k to $80k the following and I'm projected to do anywhere from $105k on the low to $165k comfortably in 2014 based on current signed contracts with customers.

 

We'd like to relocate to Arizona for the cost of living and closer to some family and some damn sun for once as soon as we can purchase a home.

 

I know I have to wait till 2 years post BK for FHA acceptance.  What issues do you think I will encounter that I may be able to prevent starting now?  My main concern is obviously still be in my current home.  Would they absolutely require a sale of my current home?  Would I have to buy with the contingency?  I would clearly be able to afford both homes and may even consider renting this out to other family in the area.

 

Input? - Opinions?

5/12- EQ FICO - 508 / TU FICO - 490 / EX FAKO - 550 Ch. 7 BK - 7/12 (discharge 10/12)
6/14 - EQ FICO 674 / 4/14 - TU FICO - 636 / EX FICO - 654

NFCU cashRewards $10,000 - NFCU Flagship Visa $8,000 - First Tech C.U. Cash Rewards $5,000 - Barclays Apple Card $2,000 - JCrew $650
In the garden starting 3/1/14 till ???
Super Contributor
ShanetheMortgageMan
Posts: 7,701
Registered: ‎09-28-2007

Re: Preparing for mortgage after Ch7 BK - expert, help me out.

If the $22k HOA lien was inculded in the BK shouldn't it be removed from title? 


There aren't any published guideliens regarding settling on a mortgage, however I'd venture to guess an underwriter would view that along the same lines as a short sale (since with a short sale you are also settling on the mortgage as well).  If you have been current on the 2nd mortgage up until you settled on it, I'd think you wouldn't have to wait any longer than 2 years from the Ch 7 BK discharge.  However if there was late payments on the 2nd mortgage within 12 months of settling on it you probably would have to wait 3 years from when it was settled.

 

As far as buying the new home before your old home would sell, as long as your debt ratio could qualify for both housing payments then that wouldn't be an issue.  However if you can't qualify for both then you'd need to sell your current home before or simultaneously with the purchase of your new home.  You can also rent out your old home to help offset it's housing payment, for that you'd need a rental agreement that spans at least the first year of the new mortgage + evidence you've recieved the first months rent and/or security deposit.

 

Since you are self-employed & relocating the underwriter will want to know how your business will maintain it's profitability being in a new location, so you should be prepared with an explanation on that.


Other than that keep on building up your credit scores, I've seen many people 2 years post BK with them in the 700's.

Frequent Contributor
grassfeeder
Posts: 316
Registered: ‎03-01-2012

Re: Preparing for mortgage after Ch7 BK - expert, help me out.

Please see my comments in blue
ShanetheMortgageMan wrote:

If the $22k HOA lien was inculded in the BK shouldn't it be removed from title? 

 

The lien was removed from my credit report, and I no longer have personal liability to pay it.  However it follows the title to the property by law (had my attorney thoroughly investigate this).  So whoever buys the place is responsible for clearing the title prior to or at closing if I understand correctly.  The fac tthat the lien is there and I'm selling the place and it will be known, I figure I'll have to pay it out of my proceeds of the sale to complete the closing of the sale.  At least this is my understanding of it.


There aren't any published guideliens regarding settling on a mortgage, however I'd venture to guess an underwriter would view that along the same lines as a short sale (since with a short sale you are also settling on the mortgage as well).  If you have been current on the 2nd mortgage up until you settled on it, I'd think you wouldn't have to wait any longer than 2 years from the Ch 7 BK discharge.  However if there was late payments on the 2nd mortgage within 12 months of settling on it you probably would have to wait 3 years from when it was settled.

 

I had no paid the second HELOC in over 3 years at time of filing the BK.  I settles the $17k balance for only $1.25k after the BK discharge with the advise of my attorney given that she said she had a couple cases where lenders persued forclosure even though the people had kept paying on it due to the 2nd mortgage.  So, I settled that for peanuts to eliminate the equiation and hopefully eliminate that possibility.  I think if anything it was a peace of mind deal for me.  Everything still reads IIB on my credit report however.  One wouldn't know that the title was released on the second unless they asked for my documentation.

 

As far as buying the new home before your old home would sell, as long as your debt ratio could qualify for both housing payments then that wouldn't be an issue.  However if you can't qualify for both then you'd need to sell your current home before or simultaneously with the purchase of your new home.  You can also rent out your old home to help offset it's housing payment, for that you'd need a rental agreement that spans at least the first year of the new mortgage + evidence you've recieved the first months rent and/or security deposit.

 

Noted.  Thank you!  I am most likely going to just sell to release myself of the property and the HOA headache however it's nice to know I have options.  I was unsure if someone would lend to me knowing that I am still in possession of a property that was IIB and I still utilize without selling.  Given the fact that I have no liability and COULD walk away from it once securing a new mortgage current place.  Not that I would, I have equity in the place now.

 

Since you are self-employed & relocating the underwriter will want to know how your business will maintain it's profitability being in a new location, so you should be prepared with an explanation on that.

 

No worries on that.  I can work anywhere that has a cell signal and an international airport within reason.  I do design work for footwear materials and most everything is done in coordination with manufacturing partners in Asia so it doesn't matter.  I can always fly back here to Portland periodically any way.


Other than that keep on building up your credit scores, I've seen many people 2 years post BK with them in the 700's.

 

Will do.  I've been very diligent in my rebuilding efforts.  700+ is the goal.  Been stuck at this 640ish range and don't seem to be making progress even though all is 100% and almost no untilization.  I think time will be my biggest thing.

 


 

5/12- EQ FICO - 508 / TU FICO - 490 / EX FAKO - 550 Ch. 7 BK - 7/12 (discharge 10/12)
6/14 - EQ FICO 674 / 4/14 - TU FICO - 636 / EX FICO - 654

NFCU cashRewards $10,000 - NFCU Flagship Visa $8,000 - First Tech C.U. Cash Rewards $5,000 - Barclays Apple Card $2,000 - JCrew $650
In the garden starting 3/1/14 till ???
Super Contributor
ShanetheMortgageMan
Posts: 7,701
Registered: ‎09-28-2007

Re: Preparing for mortgage after Ch7 BK - expert, help me out.

Yup, time heals credit wounds.  The people who have increased their scores to 700 either didn't include much in their BK or somehow were able to get items that were included in BK removed from their credit reports, not really sure how that happens.

 

When the bankruptcy paperwork is reviewed (underwriters always ask for a copy of the BK filing & discharge paperwork) they'll see that a mortgage was included, and will want to know further details on that, and that is when the settlement on the 2nd mortgage would be known.  Unless you like holding your breath, it's recommend all of that is provided to them upfront so they can make an accurate decision upon their initial review... otherwise you go back n forth several times before they can make an accurate decision on your loan approval (which can be pretty nerve racking, unless you honestly just don't care about getting appoved).  Because you were in default at the time you settled, you will likely have to wait 3 years from the date of settlement... so at the earliest it sounds like you'd have almost another 2 years (i.e. you settled after the BK discharge in Oct. 2012).

Frequent Contributor
grassfeeder
Posts: 316
Registered: ‎03-01-2012

Re: Preparing for mortgage after Ch7 BK - expert, help me out.

[ Edited ]

ShanetheMortgageMan wrote:

Yup, time heals credit wounds.  The people who have increased their scores to 700 either didn't include much in their BK or somehow were able to get items that were included in BK removed from their credit reports, not really sure how that happens.

 

When the bankruptcy paperwork is reviewed (underwriters always ask for a copy of the BK filing & discharge paperwork) they'll see that a mortgage was included, and will want to know further details on that, and that is when the settlement on the 2nd mortgage would be known.  Unless you like holding your breath, it's recommend all of that is provided to them upfront so they can make an accurate decision upon their initial review... otherwise you go back n forth several times before they can make an accurate decision on your loan approval (which can be pretty nerve racking, unless you honestly just don't care about getting appoved).  Because you were in default at the time you settled, you will likely have to wait 3 years from the date of settlement... so at the earliest it sounds like you'd have almost another 2 years (i.e. you settled after the BK discharge in Oct. 2012).


 not what I wanted to hear....sounds like I would have been better off not settling that 2nd then??

 

How will they know I settled for less than full amount though?  It stated IIB on my credit reports and I have the 'Substituation of Trustee and Deed of Reconveyance'  that's been recorded and it states the original loan amount on it?  To my untrained eyes it appears as though I just paid the thing off....

5/12- EQ FICO - 508 / TU FICO - 490 / EX FAKO - 550 Ch. 7 BK - 7/12 (discharge 10/12)
6/14 - EQ FICO 674 / 4/14 - TU FICO - 636 / EX FICO - 654

NFCU cashRewards $10,000 - NFCU Flagship Visa $8,000 - First Tech C.U. Cash Rewards $5,000 - Barclays Apple Card $2,000 - JCrew $650
In the garden starting 3/1/14 till ???
Super Contributor
ShanetheMortgageMan
Posts: 7,701
Registered: ‎09-28-2007

Re: Preparing for mortgage after Ch7 BK - expert, help me out.

Yup it is a bummer.  Well you were 3+ years behind on the HELOC, so you would've had to both caught up on the behind payments + not settle on it in order for the derogatory mark relating to it not to have an impact on you being able to qualify for a new mortgage.  You could have also modified the mortgage (to include the past due amount into principal) and then after 24 months of on time payments it would've been OK.  But what is done is done, so just plan ahead accordingly.

Super Contributor
ShanetheMortgageMan
Posts: 7,701
Registered: ‎09-28-2007

Re: Preparing for mortgage after Ch7 BK - expert, help me out.

[ Edited ]

grassfeeder wrote

How will they know I settled for less than full amount though?  It stated IIB on my credit reports and I have the 'Substituation of Trustee and Deed of Reconveyance'  that's been recorded and it states the original loan amount on it?  To my untrained eyes it appears as though I just paid the thing off....


 

The underwriters will ask & will need proof of what happened to the 2nd mortgage.  If nothing is provided to them upon the initial review then initially they'll think it's a foreclosure and ask for a copy of the foreclosure deed, which obviously wouldn't be available since it never happened.  Then through various going back n' forth they'll figure it out.  It goes back to, do you want to get the end result up front or do you want to go back n'forth with the underwriters for weeks and then find out the inevitable?  This is why you provide a letter of explanation for your delinquent credit in the initial submission to underwriting, no one wants to spend weeks on a file just to find out what really happened.

Frequent Contributor
grassfeeder
Posts: 316
Registered: ‎03-01-2012

Re: Preparing for mortgage after Ch7 BK - expert, help me out.

very true.....thank you!

 

excuse me while I go scream.  I thought I would be good come November 1 to act.  Damn it!

5/12- EQ FICO - 508 / TU FICO - 490 / EX FAKO - 550 Ch. 7 BK - 7/12 (discharge 10/12)
6/14 - EQ FICO 674 / 4/14 - TU FICO - 636 / EX FICO - 654

NFCU cashRewards $10,000 - NFCU Flagship Visa $8,000 - First Tech C.U. Cash Rewards $5,000 - Barclays Apple Card $2,000 - JCrew $650
In the garden starting 3/1/14 till ???
Super Contributor
ShanetheMortgageMan
Posts: 7,701
Registered: ‎09-28-2007

Re: Preparing for mortgage after Ch7 BK - expert, help me out.


myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.

>> About myFICO
FICO Score - The Score that matters
Click to Verify - This site chose VeriSign SSL for secure e-commerce and confidential communications.
Fair Isaac Corporation is a BBB Accredited Financial Service in San Rafael, CA
FOLLOW US Social Media Facebook Twitter Pinterest Google+