Need Mortgage approval while wrapping up Chapter 13

[Libertad2020]

Hello everyone,

I am nearing the end of my Chapter 13 BK. I filed in 8/2013. My payments were deducted from my paycheck so I've never been late.  My last payment will be on 8/17. During this five-year period, I have worked diligently on my credit and have no negatives except the bankruptcy. My current FICO Mortgage scores are:-

FICO Score 8: 667 (Exp); 677 (TU); 706 (EQ)

FICO Score 4 716 (TU)

FICO Score 2: 718 (EXP)

FICO Score 9: 748 (EXP); 761 (TU); 741 (EQ)

FICO Score 5: 717 (EQ)

I currently have a mortgage that I've been paying through the plan. My loan amount is approximately $150k but the house is valued between $285-$300k. I would like to sell this house (I think!) and purchase another property that costs $650k. It is a beautiful home with several acres. I got married after I filed but my new husband has a Chapter 7 history in his past (2010).  Our only joint debt is a car payment of $500 with a balance of $14k. I currently earn $125K per year and have additional income of $13k/year in child support payments. He is self-employed and so has a variable income averaging about $12k per month. I opened two ccs in 2014. I use them for everything but pay off the balances in full every month. One has a limit of $1k and the other has a $7.5k. My DH has approximately $15k in cc debt with a limit of $24k, and a car payment of $580 per month (balance $3k) but this is entirely in his name. I also have some raw land valued at about $80k on which I still owe $30k ($265 per month). We do not have the 20% cash to put down on the house to avoid PMI so we are interested in doing some kind of hybrid loan that will only require a 5-10% downpayment. I have been with the same employer for 16 years and am salaried. While we do have access to my 401k Retirement account ($175k) I would prefer not to go that route to secure financing. I also recently opened a Roth IRA with a balance of $3k so far. Here are my questions:-

1. Are there loans that we can get jointly? My husband thinks that I should apply alone since his Chapter 7 and cc balances might subject us to a higher interest rate. Is this necessarily true? 

2. Could we refinance the current house to get the downpayment on the new house and use the first house as an investment property? The housing market is very hot right now and I can rent/lease it for a more than the current mortgage of $1400/month.

I know this is a long post and it has taken a lot of courage to put all this information out but I have become very paranoid about finances since filing my Chapter 13 and I need to be able to make an informed decision about this potential purchase.

TIA for any information that will help.

[dynamicvb]

There are places that will let you do a new mortgage while in repayment, but they are limited and you need permission from your trustee and the court.

I think FHA requires one year after discharge and conventional  2 years. Chapter 7 is different and those waiting periods are longer.

[homeloanexpert]

Congratulations on your soon to be discharge!

I am a little confused. Your scenario stated Chapter 13, but later in your comments it states Chapter 7. There is a clear and distinct difference. Pertaining to a CH13, here is a quick overview. FHA, VA, or USDA RDL home loan products allow a borrower to refinance or purchase a home while in an active BK Chapter 13 with Court approval. Now that you are soon to be discharged, that will no longer be needed.

In order to apply for one of the above-mentioned programs, you will need to provide a Trustee Payment Summary where we can see that you have made at least the last 12 months payments on time. Many lenders will require that all payments must have been on time, but that is not a hard guideline but a lender overlay. Based on your scores, you should have problems getting qualified. Lower scores are considered with extra hoops to go through.

The rates are very competitive for these programs, but you will have monthly mortgage insurance (for FHA or USDA) no matter what the LTV is. You can refinance the home and pull cash out, but depending on the loan program, there are occupancy requirements. Your case is complicated for many lenders but seems to pretty straight forward me.

In closing, there is some misinformation floating out on the internet regarding waiting times after a Chapter 13 Discharge. So to be clear, there is no waiting period after a Chapter 13 Discharge for any FHA, VA, USDA or Portfolio Loan Programs, only Conventional loans (2 years). Let me know if you have any questions. I’d be happy to assist you.

Best Wishes!

[VALoanMaster]

Hi Libertad2020,

There are a couple of potential issues.

Because you're coming out of a BK, you're going to be limited to FHA/VA or a non qm loan which will require at least 20% down & higher rates.

FHA & VA will allow you to take out a new mortgage 12 months into a chapter 13 bk as long as you've made your payments on time for the last 12 months & you have the permission from the trustee. Fannie Mae/Freddie Mac require a 2 year wait after a chapter 13 bk discharge to be eligible.

Unless you're in a high costs area, a home for $650,000 is going to be a jumbo loan which has much more restrictive requirements than, FHA, VA, Fannie Mae or Freddie Mac so your BK could prevent you from doing anything. 

What state & county are you looking in?

[Libertad2020]

Thanks to everyone for the responses. Just to clarify: I am in an active Chaptee 13 but my husband filed Chapter 7 prior to our marriage. From the tone of your response I'm assuming that you meant that I would NOT have trouble qualifying for the loan based on my scores, am I right? If not, what kind if scores would I need? As far as the timeliness of the payments go, I have my mortgage statements as well as the ledger from the Trustee on the National Data Center website. Will this suffice? I am a little worried that the payments might not be seen as "on time" always because the Trustee did not always disburse the funds at the same time every month and sometimes sent in a bulk payment instead of regular monthly payments. Finally, since conventional loans are out of the question based on the two-year wait, can you give me some more information on the Portfolio loans and the odds of being approved for that kind of financing? I can't tell you how much I appreciate your wisdom on this. Thanks very much!

[dynamicvb]

I'm sure the LO's will reply, but I personally don't see any issue with your scores per say. I'm a little over a year from discharge and just got approved with lower scores. Of course, I'm not looking at as big of a loan and I am going to put down a decent downpayment.

Since you say you will discharge in August, I think I would just wait. It may take that long to get approval from the court anyway. This is probably your biggest obstacle that I see.

As far as the trustee payments, what counts is the day you paid them not the date they disbursed.

You also have to watch creditors once you discharge as at least in my case, I had several put stuff back on my credit trying to get me to pay more than the settlement for several months after my discharge that I had to dispute. That may pose an issue for you if it happens between a pre-approval and underwriting.

[homeloanexpert]

Since the CH7 was discharged in 2010 that's a none issue. On another note, it possible for the Trustee Summary to show late pay outs to the creditors or some in cases even when the payment was actually received and finally logged in. Some courts are so back logged that some actually have to hire 3rd party accounting firms to handle creditor payouts. I have actually needed to get secondary proof i.e. paycheck stubs, payroll ledgers, or a letter from the Trustee to make the case the payments were made on time. I have a loan now that the borrower's report shows multiple late payments and the Trustee is correcting the report now. Now is the time if there are any errors in posted received payments, to get those corrected. Before the creditor's final hearing and discharge.

[VALoanMaster]

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@Libertad2020 wrote:
Thanks to everyone for the responses. Just to clarify: I am in an active Chaptee 13 but my husband filed Chapter 7 prior to our marriage. From the tone of your response I'm assuming that you meant that I would NOT have trouble qualifying for the loan based on my scores, am I right? If not, what kind if scores would I need? As far as the timeliness of the payments go, I have my mortgage statements as well as the ledger from the Trustee on the National Data Center website. Will this suffice? I am a little worried that the payments might not be seen as "on time" always because the Trustee did not always disburse the funds at the same time every month and sometimes sent in a bulk payment instead of regular monthly payments. Finally, since conventional loans are out of the question based on the two-year wait, can you give me some more information on the Portfolio loans and the odds of being approved for that kind of financing? I can't tell you how much I appreciate your wisdom on this. Thanks very much!

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Hi Libertad2020,

FHA or VA could be an option but USDA is off the table due to your price range & I'm pretty sure your household income will exceed the county limit. FHA may or may not be an option depending on what the county loan limit is for your area which is why I asked what state & county you're looking in so I could check the county loan limit. VA will be dependent on whether or not you or your husband are VA eligible.

The portfolio loans require more money down (20%+) and the rate is going to be higher than any other option.

Please feel free to PM me for more help.