800+ Credit score, $200K+ income, Low DTI...Foreclosure within last seven years-can I refinance?

[StihlBilly]

Long story short, had some financial difficulties a few years back...had a CH7 discharged in 2013 and then ended up finally being off title of a rental property that went to foreclosure in 2018 (took forever to move through the process).  Since that time I've been able to increase my income significantly, improve my credit, etc...but my STBXW and I are parting ways.  She is moving out and I am keeping the house and giving her half of the equity.  We owe about $300K and the house should appraise for at least $500K which means I would have to refinance for $400K in order to payoff the existing mortgage and give her $100K.  The question is, will I be able to do that before December 2025 given my credit score, income and low DTI?  Both the CH7 and the old mortgage are completely gone from my credit report as if they never even happened.  The old mortgage was discharged in the BK.  Thoughts?

[Mortgage-Specialist]

You may actually qualify for Conventional right now (extenuating circumstances) But you definitely should have no problem qualifying for FHA right now. 

[StihlBilly]

I have read conflicting things about FHA and foreclosure, but I'm guessing the drawback of FHA would be the permanent MI that is required no matter what the LTV is, correct?  I suppose I could refinance now and hope that rates continue on a downward trend and refinance into a coventional once I'm clearly eligible?  I've heard about the "extenuating circumstances" option but that it really exists on paper only and that banks have their own overlays that prohibit it 99% of the time.  

[Mortgage-Specialist]

When it comes to FHA, based on your equity you'd have MI for 11 years, then it's gone. 

[Mortgage-Specialist]

To be clear, as long as you have 10% equity, your mi falls off in 11 years (for FHA)

[VAMortgageGuy]

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@StihlBilly wrote:

Long story short, had some financial difficulties a few years back...had a CH7 discharged in 2013 and then ended up finally being off title of a rental property that went to foreclosure in 2018 (took forever to move through the process).  Since that time I've been able to increase my income significantly, improve my credit, etc...but my STBXW and I are parting ways.  She is moving out and I am keeping the house and giving her half of the equity.  We owe about $300K and the house should appraise for at least $500K which means I would have to refinance for $400K in order to payoff the existing mortgage and give her $100K.  The question is, will I be able to do that before December 2025 given my credit score, income and low DTI?  Both the CH7 and the old mortgage are completely gone from my credit report as if they never even happened.  The old mortgage was discharged in the BK.  Thoughts?

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If the mortgage was included in your BK, you're eligible right now for a Fannie Mae loan.

[StihlBilly]

If the mortgage was included in your BK, you're eligible right now for a Fannie Mae loan.

I've heard that many times.  It seems to be true on paper but not in practice.  

[VAMortgageGuy]

Unless you're running into lender with overlays, these are the Fannie Mae guidelines.

Foreclosure and Bankruptcy on the Same Mortgage

If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.

[JVille]

Was the BK properly Discharged through the courts? I have run into many who went thru the entire process and the Filing was never properly finalized with an official Discharge! Usually do to not understanding the importance or incompetence on the part of the Attorney who handled it. 

[MortgageMama]

If your mortgage was included in the Chapter 7 BK, then you are eligible for a conventional loan right now. Also, and very important, if you have a written agreement such as a divorce decree or court order, your refinance would not be considered a cash-out (higher rates and fees). Rather, it would be considered a limited cash-out refinance with more favorable terms.

Per Fannie Mae:

What are the waiting period requirements for a Chapter 7 or Chapter 11 bankruptcy?

A four-year waiting period is required, measured from the discharge or dismissal date of the bankruptcy action.