Bankruptcy and buying a home

By
Mortgage and Lending with Movement Mortgage 770-634-4021 NMLS #206275

Bankruptcy has certainly been the last choice for many Americans.  The question has been asked of me twice in the last week, so I thought perhaps it would be a good topic for my next blog.

For an individual, there are two types of bankruptcy, Chapter 7 and Chapter 13.  In a Chapter 7, all of your debt is wiped out when the bankruptcy is discharged.  In a Chapter 13, you will be making payment to the bankruptcy court for the trustee to repay your creditors. 

In order to qualify for an FHA mortgage, you must wait 2 years from the discharge date if you have filed a Chapter 7 Bankruptcy.  The borrower must have re-established credit, have a qualifying credit score and have no derogatory credit since the date of the discharge.

If you are 12 months into a Chapter 13 bankruptcy, with bankruptcy trustee approval, you can qualify for an FHA mortgage.  The borrower must have re-established credit, have a qualifying credit score and have no derogatory credit since the date of the bankruptcy filing.

It should be noted, that other compensating factors will be evaluated in the underwriting process, such as length of time on the job, rental history, down payment from own funds, reserve funds after closing.  Debt to housing and total debt to income ratios will be strictly enforced.

If the buyer has been a credit counseling program, the same rules apply as the Chapter 13 bankruptcy.

Please note, I am not giving legal advice, merely providing information from a mortgage underwriting process.  For more specifics of your situation, it is recommended that you speak with a Banktuptcy Attorney.

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Kathleen Sheehan

Branch Manager

Movement Mortgage, LLC

NMLS # 206275

Georgia Residential Mortgage Licensee #25839

157 Reinhardt College Parkway

Canton, GA 30114

770.634.4021 cell

 

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The opinions and general information in this blog are soley those of Kathy Sheehan.  Specifics regarding an individual case should be discussed in detail with a loan professional.  For a confidential consultation, please feel free to contact me via phone or email.  All terms and conditions are subject to change.

 

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  1. Dan Edward Phillips 04/26/2011 08:46 AM
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Location:
Georgia
Tags:
fha mortgage
bankruptcy
chapter 7
chapter 13
mortgage
bankruptcy discharge
credit counseling

Comments 4 New Comment

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Rainer
405,885
Randy Ostrander
Real Estate Broker, Serving Big Rapids and West Central MI
Lake and Lodge Realty LLC

Seems the bankruptcy and foreclosure buyers are the next wave to need help. Challenging but very rewarding knowing you helped.

April 20, 2011 09:31 PM
Rainmaker
141,519
Rhonda Hollifield
Broker REALTOR CRS, GRI, ABR
Keller Williams Realty Mountain Partners

Thinking they would be high risk for a lender.  Maybe renting is their best option.

April 20, 2011 09:46 PM
Rainmaker
497,527
Dan Edward Phillips
Humboldt and Del Norte Counties, CA
Dan Edward Phillips, Humboldt and Del Norte Counties, CA

Hi Kathy, good basic input for the home buyer with past credit problems.

April 21, 2011 04:25 AM
Rainmaker
565,341
Kathy Sheehan
Branch Manager
Movement Mortgage 770-634-4021

There is a huge difference between a one time incident that forced someone into bankruptcy and financial mismanagement.  There are good candidates out there, but it takes a skillful MLO to know the right questions to ask.

Thanks for the comments.

April 21, 2011 10:16 AM
Anonymous
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Rainmaker
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Kathy Sheehan

Branch Manager
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