Bankruptcy and buying a home

Mortgage and Lending with Bay Equity, LLC 770-634-4021 NMLS #206275 GA 25689

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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Kathy Sheehan Senior Loan Officer






Bay Equity LLC

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11475 Great Oaks Way, Suite 350, Alpharetta, GA 30002

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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.



Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Dan Edward Phillips 04/26/2011 01:46 AM
credit counseling
chapter 13
chapter 7
fha mortgage
bankruptcy discharge

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

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

Apr 20, 2011 02:31 PM #1
Rhonda Hollifield, REALTOR®
Keller Williams Realty Mountain Partners - Hendersonville, NC

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

Apr 20, 2011 02:46 PM #2
Dan Edward Phillips
Dan Edward Phillips, Humboldt and Del Norte Counties, CA - Eureka, CA
Humboldt and Del Norte Counties, CA

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

Apr 20, 2011 09:25 PM #3
Kathy Sheehan
Bay Equity, LLC 770-634-4021 - Atlanta, GA
Senior Loan Officer

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.

Apr 21, 2011 03:16 AM #4
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Kathy Sheehan

Senior Loan Officer
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