For those in financial distress, filing for bankruptcy under Chapter 13 can offer a way to reorganize debts and potentially keep their homes. However, homeowners in Chapter 13 may find it difficult to obtain a mortgage or refinance their current loan. In this article, we will explore mortgage lenders that work with Chapter 13 bankruptcy and discuss the options available to borrowers.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a type of bankruptcy that allows individuals with a regular income to reorganize their debts and create a repayment plan that typically lasts between three and five years. Unlike Chapter 7 bankruptcy, which involves the liquidation of assets to pay off debts, Chapter 13 allows individuals to keep their assets and pay off their debts over time.
Why is it Difficult to Get a Mortgage in Chapter 13 Bankruptcy?
Lenders are often hesitant to offer mortgages to borrowers in Chapter 13 bankruptcy because they are considered to be high-risk borrowers. The bankruptcy process can take years to complete, which means lenders may be hesitant to extend credit to borrowers who may not be able to make payments for an extended period of time.
However, it is still possible to obtain a mortgage while in Chapter 13 bankruptcy. Here are some mortgage lenders that work with Chapter 13 bankruptcy:
Mortgage Lenders that Work with Chapter 13 Bankruptcy
- Quicken Loans Quicken Loans is an online lender that offers a range of mortgage products, including FHA loans, VA loans, and conventional loans. Quicken Loans considers borrowers in Chapter 13 bankruptcy on a case-by-case basis and may be willing to work with borrowers who have completed a minimum of one year of their repayment plan.
- New American Funding New American Funding is a full-service mortgage lender that offers a variety of loan programs, including FHA, VA, USDA, and conventional loans. New American Funding may be willing to work with borrowers in Chapter 13 bankruptcy who have completed at least one year of their repayment plan.
- Carrington Mortgage Services Carrington Mortgage Services is a mortgage lender that specializes in serving borrowers with less-than-perfect credit. Carrington Mortgage Services offers a range of loan products, including FHA loans, VA loans, and conventional loans, and may be willing to work with borrowers in Chapter 13 bankruptcy who have completed at least one year of their repayment plan.
How Long Do I have to Wait to Apply for a Mortgage After Chapter 13?
After completing a Chapter 13 bankruptcy, the waiting period to apply for a mortgage can vary depending on the lender and the type of loan you are seeking. Generally, borrowers will need to wait a minimum of two years after the discharge date of the bankruptcy before they can apply for a mortgage. However, some lenders may be willing to work with borrowers who have completed their repayment plan for at least one year. It is important to check with individual lenders to determine their specific requirements and waiting periods.
How Does Chapter 13 Work with a Mortgage?
Chapter 13 bankruptcy can help homeowners who are struggling to make mortgage payments by allowing them to reorganize their debts and create a repayment plan. When filing for Chapter 13, homeowners must continue to make their regular mortgage payments, and any past due mortgage payments are included in the repayment plan. The repayment plan typically lasts between three and five years, during which time the homeowner makes monthly payments to a trustee who distributes the funds to creditors, including the mortgage lender. If the homeowner completes the repayment plan, any remaining unsecured debt may be discharged, and the homeowner may be able to keep their home. However, it is important to keep in mind that if the homeowner fails to make their mortgage payments during the repayment plan, the lender may still foreclose on the property.
Can I Refinance My Home if I am in Chapter 13?
Refinancing a home while in Chapter 13 bankruptcy can be challenging but is not impossible. In most cases, borrowers will need to obtain court approval before refinancing their home. Additionally, lenders may be hesitant to refinance a home while the borrower is in Chapter 13 because of the added risk. However, some lenders may be willing to work with borrowers who have completed a minimum of one year of their repayment plan and have court approval. It is important to shop around and compare rates and terms from multiple lenders to ensure you are getting the best deal possible. It is also important to consult with a bankruptcy attorney to understand the legal requirements and potential risks involved with refinancing while in Chapter 13.
What are FHA Guidelines on Chapter 13?
The Federal Housing Administration (FHA) has guidelines regarding borrowers who have filed for Chapter 13 bankruptcy. According to FHA guidelines, borrowers who have completed at least one year of their repayment plan and have made all their payments on time may be eligible for an FHA loan. Additionally, borrowers must receive court approval to take on new debt and must provide documentation of their bankruptcy and repayment plan. It is also important to note that the borrower must have a minimum credit score of 580 to be eligible for an FHA loan. However, lenders may have additional requirements, so it is important to check with individual lenders to determine their specific guidelines.
Obtaining a mortgage while in Chapter 13 bankruptcy can be challenging, but it is not impossible. By working with a lender that specializes in working with high-risk borrowers, borrowers may be able to find a mortgage that meets their needs. As always, it is important to do your research and compare mortgage rates and terms from multiple lenders before making a decision.