topic Re: VA loan and Chapter 13 bankruptcy in Mortgage Loans

VA loan and Chapter 13 bankruptcy

crys12065 — Thu, 07 Apr 2022 11:24:26 GMT

Hi all,

Is it one year or two years post chapter 13 for a VA mortgage? I guess I'm looking for what underwriting is likely to approve.

I am getting different answers from different lenders on this and as the interest rates are soaring we would really like to get started on finding a house and locking in a rate.

My husband is retired army and he discharged a chapter 13 bankruptcy back in May 27 2020 with his ex wife. It has been discharged and paid off since then. Some lenders there's are telling me he needs to wait two years post discharge before we can even apply. But I read online through my research that it's only one year for chapter 13.

Veterans United is the only one who told me so far that it would not be a problem at all, so we are in the process of getting a preapproval with VU but their rates also seem high and I would really like to rate shop with a couple of other lenders but don't want automatic denials based on his bankruptcy and waste the credit pulls.

NFCU said we would have to apply and go to underwriting and see if it would be approved prior to two years. A Few others have said sure send in the application and we can preapprove you but you can't close on anything until after June 1st because of the bankruptcy. Which may be fine but in this housing market there's no sense in even looking if you can't give an offer and close quickly.

His score is currently 719 and he has no baddies since bankruptcy.

Also any experiences with Penfed? The rates listed are much lower than other 2 lenders have told me. Or any other lender suggestions would be great.

thanks!

Re: VA loan and Chapter 13 bankruptcy

donkort — Thu, 07 Apr 2022 13:22:21 GMT

It's a minimum of one year post Chapter 13 bankruptcy before one could apply for a VA home loan.

In practical terms, it depends upon the mortgage company, and the individual nature of your credit report.

Re: VA loan and Chapter 13 bankruptcy

crys12065 — Thu, 07 Apr 2022 14:19:40 GMT

@donkort wrote:
It's a minimum of one year post Chapter 13 bankruptcy before one could apply for a VA home loan.

In practical terms, it depends upon the mortgage company, and the individual nature of your credit report.

Thanks For the reply! Yes what I am finding is that while the VA has those guidelines the banks do not. I just spoke to PenFed and it is also two years post discharge from chapter 13 before they will approve anything.

In a different market waiting another seven weeks is not a big deal however the interest rates are concerning me and we do not want to wait too long and have a much higher rate than if we just locked one in now.
So it's just limiting our options on who we can apply with.

Re: VA loan and Chapter 13 bankruptcy

MauiMan85297 — Thu, 07 Apr 2022 14:50:04 GMT

You need to call around, a lot of lenders including us can do a VA loan 1 year post BK13.

12 months under payment plan with BK judge approval OR plan is completed. When you shop rate just make sure you're shopping cost of loan as well.

31M20 here

Re: VA loan and Chapter 13 bankruptcy

thehoustonhammer — Mon, 06 Feb 2023 18:32:20 GMT

I am not sure about the waiting period. However, I recently closed VA loan $390K at around month 50 of 60 on Chapter 13 payment plan. It required Trustee approval and manual underwriting by lender. Mortgage payment is $1k above what I paid for rent. No objection from Trustee. I had to pay attorney an extra fee for the filing.

Re: VA loan and Chapter 13 bankruptcy

VAMortgageGuy — Mon, 06 Feb 2023 21:37:56 GMT

The reason you're getting conflicting answers is due to lender overlays.

Here are the actual VA guidelines:

Bankruptcy Petition Under Chapter 13 of the Bankruptcy Code:

This type of filing indicates an effort to pay creditors. Regular payments are made
to a court-appointed trustee over a 2 to 3-year period or, in some cases, up to 5
years, to pay off scaled down or entire debts.
If the borrower(s) has finished making all payments satisfactorily, the lender may
conclude that the borrower has re-established satisfactory credit.
If the borrowers) has satisfactorily made at least 12 months worth of the payments
and the Trustee or the Bankruptcy Judge approves of the new credit, the lender may
give favorable consideration.

One reason lenders require a 2 year wait post discharge is because VA requires the file to be manually underwritten regardless of whether or not they get an automated underwriting system approval. In situations like this, I have my head underwriter review the file prior to issuing a pre-approval letter to make sure there are no issues/surprises once a client is under contract.

In my experience, NFCU and PenFed generally tend to be more conservative.