Chapter 7. Is a new mortgage loan possible two years after discharge?

[Anonymous]

Hello,

Newbie questions. Sorry. Wife did a Chapter 7 one year ago (by her self). I did a chapter 7 four years ago (by myself). We didn't loose our house, never late on house payments. We didn't loose our vehicles either, never late on those either. One is now paid off. We had extenuation circumstances. I lost my income and claimed chapter 7. Wife lost her second job due to Covid last year thus she claimed chapter 7. Since then, she got a higher degree than previously. Better paying job to avoid the need for a second job. Solving the issue. Our down payment would be 30% of the house price. Our scores are 680/717. We have established new lines of credit (credit cards and auto loans). Could we get a mortage two years after discharge or do we have to wait the four years for conventional loan? I don't want FHA and have to pay PMI since we have a large down.

[Mortgage-Specialist]

You may qualify on your own now. Or wait to include your wife a year from now and go FHA. Wouldn't make a whole lot of sense waiting 4 years to avoid mortgage insurance when you can always refinance out of an FHA loan and go into a conventional loan later on.

Is it possible to qualify for a conventional loan less than 4 years after a ch 7? Yes, but unlikely. If the automated system approves you then underwriting would follow suit. But the majority of the time, the automated system acknowledges the ch 7 and usually will not give the approval. 

[Anonymous]

Thank you for the reply. So after 2 years FHA is ok regardless of circimstances? How much is PMI (percentage of loan) until we could re-fi the loan?

[Mortgage-Specialist]

If you put 10% down or more the annual MI rate is 0.8%  Basically if your loan amount was 300k your monthly MI would be roughly $197 per month.  But with FHA, the interest rste is fairly  lower than Conventional. So don't look at it like you're overpaying $197 per month because the difference with the lower rate - it would likely be closer to your FHA Payment being only $75 per month higher than a Conventional payment

[Anonymous]

My reading says PMI will be removed after 11 years if more than 10% is put down on FHA. Anything else for removal? Thanks

[VALoanMaster]

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@Anonymous wrote:

My reading says PMI will be removed after 11 years if more than 10% is put down on FHA. Anything else for removal? Thanks

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If you put 10% or more down and you take a 15 year term, the MI is cut from .8% to .45% and will drop off after 11 years.

The only other way to get rid of the FHA Mortgage Insurance is to refinance out of FHA into a conventional loan once you have at leats 20% equity.

[Anonymous]

So 30yr loan and 30% down (over the 10% required) it wont drop off after 11 years? Glad I asked here. The other blog said yes. Thank you!

[VALoanMaster]

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@Anonymous wrote:

So 30yr loan and 30% down (over the 10% required) it wont drop off after 11 years? Glad I asked here. The other blog said yes. Thank you!

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Yes, it will.

[homeloanexpert]

@Anonymous 

Chiming in on this. There are allowances that can be made making it possible to qualify for a loan earlier under extenuating circumstances, but it can be a hard sell in some cases. I've closed a few this year so it 's still fresh in my mind. If you don't qualify under extenuating circumstances, and need your spouse's income to qualify, there are non-agency loan products that will allow a BK Chapter 7 with only 1 year seasoning. These NonQM loans programs do have higher rates as you might imagine, but can be a viable option for some borrowers to purchase or refinance. They do have adjustable and fixed rate options.

Best wishes to you!

[Anonymous]

Thank you Sir!