March 5, 2015
A reader asks, “I am a bit confused. My Chapter 13 was discharged in February 2014. Since then I have re-established my credit and my score is at 660 and no late payments. What is the sooner I will be able to pre-qualify for a loan and/or close on a FHA.”
Chapter 13 bankruptcy is addressed specifically in FHA loan rules. FHA loans are still possible for qualifying borrowers, but the following rules apply.
“A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the lender documents that
• one year of the pay-out period under the bankruptcy has elapsed
• the borrower’s payment performance has been satisfactory and all required payments have been made on time, and
• the borrower has received written permission from bankruptcy court to enter into the mortgage transaction.”
HUD 4155.1 also adds the following:
“TOTAL Scorecard Accept/Approve Recommendation
Lender documentation must show two years from the discharge date of a Chapter 13 bankruptcy. If the Chapter 13 bankruptcy has not been discharged for a minimum period of two years, the loan must be downgraded to a Refer and evaluated by a Direct Endorsement (DE) underwriter.”
So much depends on the lender–whether the lender is willing to work with a borrower who has a Chapter 13 on his or her record for a start. And. as stated above, if the bankruptcy has not been discharged for two years or more, it must be manually underwritten and may require additional processing.
The short answer is that the borrower would need to find a participating FHA lender and have a discussion about what is possible under the borrower’s current circumstances. That’s the only way to be sure about whether or not the lender is willing to issue a new FHA loan to a borrower who has been discharged from a Chapter 13.
Do you have questions about FHA home loans? Ask us in the comments section.
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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