Chapter 13 Bankruptcy can be a challenging situation for borrowers, but did you know that it’s possible to qualify for a loan even before the bankruptcy is discharged? FHA (Federal Housing Administration) allows borrowers with an open Chapter 13 BK to proceed with financing, provided they meet certain requirements.
Firstly, a minimum of 12 full months of regular payments must be made to the Court as agreed under the payment agreement. This demonstrates the borrower’s commitment to fulfilling their financial obligations. Additionally, no late payments are allowed during this period, ensuring a consistent payment history.
In cases where the Chapter 13 Bankruptcy is not discharged for at least 2 years, manual underwriting is required. This means that the lender will carefully evaluate the borrower’s financial situation, and reserves will be required to mitigate any potential risks.
Furthermore, written permission from the Court is necessary for the borrower to enter into a mortgage transaction. This ensures that all parties involved are aware of the borrower’s intentions and that the transaction is legally permissible.
It’s important to note that no modifications to the payment plan are allowed due to continued hardship or other reasons. This requirement ensures that the borrower remains committed to the agreed-upon payment terms.
FHA provides an opportunity for borrowers with an open Chapter 13 Bankruptcy to qualify for a loan. By meeting the minimum payment requirements, maintaining a clean payment history, obtaining written permission from the Court, and adhering to the payment plan, borrowers can move forward with their financing goals. It’s essential to consult with one of our loan originators who can guide borrowers through this process.