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Buying a home during an active 13

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  • Buying a home during an active 13

    Hi everyone,

    I didn't see much information on this topic when I was in need of information, so I thought it would be helpful to someone out there to share my experience with (successfully!) purchasing a home during an active Chapter 13.

    The FHA Back to Work program is an FHA "extenuating circumstances" program that allows a home purchase one year after confirmation of a 13 or a foreclosure, essentially waiving FHA's typical 3 year waiting period. You must meet the following criteria to receive approval:
    1. Have a lot of patience. Really. By the time you receive approval for your loan, you'll swear you are part of an elaborate and cruel experiment.
    2. Have documented proof of a 20% or more loss in household income preceding your foreclosure/bankruptcy, and the loss of income must be out of your control (e.g. job loss).
    3. Be at least 12 months past foreclosure or confirmation of bankruptcy.
    4. Since the foreclosure or bankruptcy, your payment history must be pretty spotless -- demonstrable on time utility payments, payments to Trustee, no more than one 30 day late payment to anyone, etc.
    5. You must take a "pre-purchase counseling" course 30 days before you formally apply for loan approval. I did this online and obtained the certificate through e-mail.
    I found a lot of "this program never works" posts on message boards, but tried it anyway. I had both an active 13 AND a foreclosure (house was surrendered and eventually foreclosed), and still got approved at a great rate. If you decide to try getting FHA approval through this program, here are some tips for success that I wish someone would have shared with me early in the process:
    • Find a lender with a clue. I contacted large lenders that claimed to know how to implement this program, and gave up on each of them when it became clear that they had no idea what they were doing. I ended up finding a post from a lender on zillow that had demonstrated success with doing Back to Work program loans, and he was amazing to work with throughout the process. There are lots of pitfalls when applying for this program. Make sure you have a lender on board that understands what they're doing, and isn't terrified by the words "manual underwriting".
    • Keep everything. Make sure you have proof of all of your Chapter 13 payments, your utility payments (all of them!), your rent payments, any loans being paid outside of your 13 per your Plan (e.g. car loans, student loans, whatever).
    • Start writing a brief (1 page) letter of explanation as soon as possible, and revise it until it's perfect. You have one shot to demonstrate that you had an unplanned loss/decrease in income, that you were forced into filing 13/foreclosure, that you're responsible and are recovering from the event, etc.
    • Make sure you have at least 3.5% to put down on the house, and that the cost of the house you're considering is within FHA limits for your state. The down payment cannot be made with "gifted" funds, and must be documented as coming from your own personal funds. Closing costs can be paid with gifted funds.
    • "This may take awhile". Be up front with the seller, and make sure they know it may take you some time to close. You don't want to get approved only to have to start your house search over because your seller moved on. Manual underwriting takes time, FHA appraisals take a little time, meeting all program requirements takes time. Also, make sure your attorney submits your Motion to Incur Debt to your Trustee as soon as you possibly can. You won't receive final loan approval without that approved/signed motion from the court.
    • If you have what your lender considers "unusual transactions" in your bank accounts, be prepared to account for all of them. I had to write several letters explaining even not-so-unusual transactions, such as transfers between checking and savings (and vice versa).
    • FHA doesn't have a minimum credit score for this program, but you can be sure your lender will. For me, the magic number was 640. Higher is always better, but you're not going to have a 750 in an active 13 anyway.
    • Make sure you are extremely timely in responding to requests for information, etc. Your lender has a lot of work to do in order to get this done, which you cannot control. What you can control is making sure you are doing everything in your power to help yourself get approved, which means full and complete documentation and quick responses.
    Good luck!
    Last edited by 159515951; 02-19-2016, 11:15 PM.

  • #2
    This is great consolidated information and I'm making it a sticky.
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog


    I am not an attorney. Any advice provided is not legal advice.

    Comment


    • #3
      Funny. Just saw a question about this on another ch13 bankruptcy forum site. Great info! My impression was that this program is very strict with qualifying criteria for cause of your chapter 13. As in you had to have a certain percentage of income loss for a legit (and specific!) reason... Any insight into that?

      Comment


      • #4
        Originally posted by Smithsam1225 View Post
        Funny. Just saw a question about this on another ch13 bankruptcy forum site. Great info! My impression was that this program is very strict with qualifying criteria for cause of your chapter 13. As in you had to have a certain percentage of income loss for a legit (and specific!) reason... Any insight into that?
        Yes - read criterion #2 in my original post.

        Comment


        • #5
          I tried to get our home refinanced last year while we were about 18 months out from our Chapter 13. Paying 100%, lost job and income due to combat related injury. We received permission to obtain a VA CASH-OUT refi option from the Trustee. Ran through the gambit with Lendingtree, Quickenloans, Wells Fargo, NewDayUSA, VeteransUnited and a local broker. No missed payments and was still denied.

          Gratefully, we have already made our last payment into our plan, but we have some SERIOUS HOME REPAIRS that need to be fixed IMMEDIATELY. Sure, we will be able to start saving immediately; however the repairs that are needed are safety hazards. I tried to use the VA adaptive housing grants but that has already gone into over time. Just glad to be done with this monster and can say that I have learned how to use my credit more wisely.

          Comment


          • #6
            Quick update....As soon as I had my Chapter 13 plan paid in full and got notice from Wells Fargo stating that all payments and arrearage were paid on time and in full, I began the house hunting process. Remember that you have already made timely payments to your trustee and your ndc.org account shows that and the Final Cure Notice give the full payment history.

            This is nice to have when you begin the loan process. I decided to us my VA Home Mortgage and the USDA has pretty much the same criteria. Some lenders WILL NOT TOUCH your application with a 10 Foot Pole, just be persistent. One underlying issue that I had in obtaining my loan was the fact that a judgment was filed before we entered our plan. Then came the lien from that judgment and both were tagged onto my current home's Title and Deed at the County Office for ALL TO SEE! Make sure that your plan allowed for the 2nd Mortgage to be stripped.

            In our case, Citifinancial SOLD the UNSECURED debt to Portfolio Recovery Associates which in turn laid claim to that money at the 2nd Meeting of Creditors. The unsecured portion was eventually forgiven by CitiFinancial when they gave the Trustee, my attorney and I a letter stating that the 2nd Mortgage was forgiven along with a 1099C ($10,000 worth of income for IRS Reporting) and a copy of the Lien Release. What was missing????? It was not until 4 weeks before my 1 June 2017 discharge date when I finally received a letter from the attorney that stated that this judgment was satisfied.

            Word of caution, never assume that the judgment would be automatically removed, quite the contrary. I had called every person in the food chain to get a successful outcome in order to get this removed. The underwriting and escrow company investigated my property records along with the home that I am purchasing. They want to see a CERTIFIED COPY of that SATISFIED JUDGMENT ORDER along with the CH13 discharge.

            So, in a nutshell before you proceed to move forward with a New Mortgage, REFI, HARRP or Interest Reduction Loan, check your current home's title and deed! Just waiting now for pacer to show my discharge then off to closing we go on 23 June! So happy to be done with this!

            Comment


            • #7
              UPDATE! 13 June 2017, 11 days after receiving Chapter 13 Discharge......I have been Cleared To Close from the Underwriting Team at NewDayUSA! Final steps, packing, changing addresses on Vehicles, Drivers Licenses, Yard Sale this weekend, Utilities, Cable, Internet......

              Yes it is possible to buy a home IMMEDIATELY following your Chapter 13 Discharge. Be persistent, get your payment history in order from the Final Cure Notice, Provide at least 1 year of non traditional credit verification (Cell Phone, Insurance, Utility Bills, etc..).

              Comment


              • #8
                Congratulations sir! What a roller coaster!
                Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                Status: (Auto) Discharged and Closed! 5/10
                Visit My BKForum Blog: justbroke's Blog


                I am not an attorney. Any advice provided is not legal advice.

                Comment


                • #9
                  Thanks We received our closing docs 2 days ago, tomorrow we go to the table and get the KEYS! So glad to be able to get out of the house that has so many bad memories but some good ones too! Our daughter is renting the home from us and is just as excited as we are to move in as we are moving out. Everyone, YOU CAN GET A HOUSE if you already have a HOUSE and have been making payments to the TRUSTEE during your plan. Your going to HEAR LENDERS SAY: " You have to wait for 2 years before you can apply for a mortgage." NOT! Especially VETERANS like myself that have had many adjustment issues once we got out and had to go down the path of a Chapter 13. Just shop around and you'll be surprised!!!!! NewdayUSA, NAVY FEDERAL are just a couple of lenders THAT WILL HELP YOU ACHIEVE YOUR DREAMS!

                  Comment


                  • #10
                    Incredible story. Incredible. I hope that you stay around and help others on their journey through Chapter 13 and how to even purchase a home quite literally days after discharge! It is people like you and me and that others that make this place a great resource. We are real people having gone through bankruptcy and just trying to survive.
                    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                    Status: (Auto) Discharged and Closed! 5/10
                    Visit My BKForum Blog: justbroke's Blog


                    I am not an attorney. Any advice provided is not legal advice.

                    Comment


                    • #11
                      Originally posted by justbroke View Post
                      Incredible story. Incredible. I hope that you stay around and help others on their journey through Chapter 13 and how to even purchase a home quite literally days after discharge! It is people like you and me and that others that make this place a great resource. We are real people having gone through bankruptcy and just trying to survive.
                      Plan on helping as much as I can. Life is all about LEARNING FROM OUR MISTAKES! Sure, it definitely feels like forever until you get your discharge, but hang in there and just remember this too is just a temporary station in life. Your Trustee will make sure you have MORE THAN ENOUGH to live on!

                      Comment

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