Today we’re going to talk about getting an FHA loan while in active Chapter 13 bankruptcy.

FHA loans overall are a great option for first time home buyers, home buyers with a limited budget for a down payment, homeowners who want to refinance with cash out, and homeowners with a current FHA loan that are looking to lower their current rate or term. Applicants in active Chapter 13 bankruptcy or recently discharged are also eligible for FHA financing, subject to manual underwriting guideline requirements.

Here is a summary of what you will need to qualify (this is not all inclusive and additional conditions will apply)

• 2 year job history in the same line of work
• 1 month reserves – this is equal to one month of your new mortgage payment in checking/savings/401K etc. **see below for additional info if you don’t have that in the bank right now.
• 12 months on time payments to all creditors. No more than 2 – 30 days past due on accounts looking back 13-24 months.
• 12 months on time payments to the trustee, if still in active repayment.
• Collections, charge offs, or judgements after the Bankruptcy filing date are reviewed case by case. Best practices is not to have any.
• Child support, if applicable – up to date and current.
• Credit score 580+ for cash out refinances.
• Credit scores to 500 if a purchase transaction, still subject to the above payment history requirements.
• 80% loan to value maximum for cash out refinancing.
• Approval from your Trustee or Court order approving the transaction. There are almost 200 trustees around the country and the process for approval can vary. Best to consult your attorney on what you’ll need to get approved. This typically happens later in the process, after you’ve received your pre-approval from us and your Loan Estimate of terms.

Reserves option / work around

**You can use a 30 day bank transaction printout, stamped by the teller – on your payday, before any bills come out and many times this will be sufficient to qualify for the reserve requirement.

The process is very similar to any home loan qualification. Credit, income, assets, and collateral are all important factors. The great thing about FHA is they allow for lower scores than many programs, allow for a higher debt to income ratio than many programs, and allow for open/active Chapter 13.

You may be paying a high rent amount and buying a home will save you money. Maybe your family has grown and you need more space, maybe you need to down-size because of a specific situation in your life. All of those can be good reasons for the trustee or court to approve your purchase loan request.

If you are a homeowner, have the equity available and have been in your plan over a year – many times you can access your equity with an FHA cashout refinance and pay off your plan early. This could save you hundreds or thousands of dollars a month! I’ve helped hundreds of applicants pay off their chapter 13 bankruptcy plan early doing exactly this.

If you are interested in looking at your specific scenario as it relates to FHA financing while in active Chapter 13 bankruptcy, or recently discharged – refer to my main page and fill out the contact form with your info and or you can follow the full application and get your pre-qualification results quickly.