February 2, 2015
A reader asks, “Please help me understand the preceding statement. First it states the borrower must have at least one year of on time payments to the trustee in a chapter 13. Then it states the borrower must be 2 years post discharge of chapter 13. My wife and I filed chapter 13 in May of 2014, when can we ask the courts approval to enter into a new mortgage. Might we be eligable as of 5/2015, or as the statement suggests, 2 years post discharge?”
This question is in reference to material in one of our blog posts, FHA Loans Following Chapter 13 Bankruptcy.
It is true that the FHA requires borrowers to have at least a full year of on-time payments under the Chapter 13 arrangement, and the lender is required to document two years time since the discharge of the Chapter 13.
However, the reader might have missed the following line in the FHA loan rules that govern these issues, which says that in cases where less than two years have elapsed since the discharge of the bankruptcy, “the loan must be downgraded to a Refer and evaluated by a Direct Endorsement (DE) underwriter”.
That means that the loan may go to the FHA for review before it can be approved, but at a minimum it must be reviewed by an underwriter with Direct Endorsement status. This may require additional time in the FHA loan process to accomplish, so borrowers should expect more time to be taken processing such a loan. Yes, FHA loan rules do require the borrower to get court permission to enter into the mortgage loan agreement.
These situations are handled on a case-by-case basis so it’s best to talk to a loan officer about your needs when planning for a new loan following a Chapter 13 bankruptcy. Your credit since the time of the filing, your repayment history and other financial qualifications will all play a part in whether you can apply for a new FHA loan or not.
Do you have questions about FHA home loans? Ask us in the comments section. All comments are held for moderation. Yours may not appear right away depending on the volume of comments to be moderated and other factors.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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