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What I'm learning in 2017 about Mortgage Refi after Chap 13

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  • What I'm learning in 2017 about Mortgage Refi after Chap 13

    I filed Chap 13 on April 30, 2010 and was discharged on May 27, 2015. At the time I filed, the house that I bought 6 years earlier for $355K was worth about $150K. I financed the purchase with an 80% first mortgage and a 20% HELOC. I was able to strip the HELOC in the Chap 13. The housing market has improved and, if you believe Zillow, my home is now worth about $460K. I don't believe Zillow, but think it is probably worth $400K to $425K. I have been anxious to refinance my adjustable rate first mortgage with a balance of $220K. The adjustable rate has been good for me up to now, but the rate is now about the same as current refinance rates. The adjustable rate on my Heloc contributed to my need to file BK, as well as the uncertainty of my adjustable first which had not yet plummeted at the time I filed BK. I am anxious to have the security of a fixed rate.

    I also want to use some of the equity ($100K or less) to replace the roof, do some other repairs and perhaps a small addition to my little 845 square foot home.

    People ask questions all the time about whether they can get a mortgage after BK, but we don't get a lot of reports on actual experiences. So, I thought I'd share what I am learning. I started looking at refinancing last November and have yet to refinance.

    Lesson 1: FHA Mortgage Insurance Requirements Changed in 2013. I could have refinanced my mortgage the day after discharge, if I was willing to take an FHA loan. FHA used to require mortgage insurance only if your loan was for more than 78% of the value of the home. When talking to a mortgage broker in November of 2016, I learned that they changed that rule in 2013 and all 30 year FHA mortgages must now include mortgage insurance for the first 11 years of the loan. I considered refinancing in an FHA loan and then refinancing again when I could qualify for a conventional loan. The upfront FHA fee (about $4,000, I think) and other refi expenses made that not make sense.

    Lesson 2: No Conventional Mortgage Until 2 Years and 1 day after discharge, Regardless of What is on Your Credit Report: I searched high and low and spoke to several mortgage brokers in November and couldn't find any conventional lender willing to lend to me. FHA was my only only option. I assumed that meant I could get a conventional loan as soon as the bankruptcy dropped off my credit reports, 7 years after filing. My reports stopped showing the BK in early April 2017, a little earlier than I expected, but some individual creditors still showed accounts as IIB. On May 1st, I checked all 3 credit reports and they contained absolutely no mention of the BK. The FICO 8 scores I can get from different credit cards were 790, 825 and 841. Great, I thought, I'm ready to refi. WRONG! I learned that even though my credit scores are excellent and my BK is not on my credit report, I still cannot get a conventional mortgage until 2 years and one day after the discharge. The creditors do check public records and will find my bankruptcy on court records. Also, they ask on the mortgage application where I would not lie. I already knew that my bankruptcy would be a public record forever, even if it doesn't show up on my credit reports. But, I didn't know lenders routinely went beyond the credit reports to independently check the public records.

    Lesson 3: The FICO score the lender pulls up will not be the same as the FICO score that your credit card provides: I already knew this, but was still surprised by the differences. One lender ran my scores and they were 781, 760 and 753 (instead of 790, 824 and 841). The odd thing is that highest score (781) was from Experian which was the lowest score (790) provided by my credit cards. It's very frustrating, but for me it won't make a difference. As long as your middle score is above 740, you qualify for the best rates.

    Lesson 3.1: You can Learn the FICO scores the lenders will use for Mortgages. I did a little research after typing Lesson 3. Here is a list of what score versions are used for different kinds of credit: You can buy a report including the commonly used scores for auto, mortgage and credit card lending. I found people who purchased those scores who said that they were exactly what lenders pulled.

    Lesson 4: If your credit score is good, multiple credit inquiries will not matter, even if not close enough in time to be considered a single inquiry: When I learned that I was going to have to wait until May 28th to qualify for a conventional mortgage, I told the rep that gave me that info that I had inquiries on my credit report for mortgages in November and now on May 1st. I asked if the multiple inquiries would be a problem if I didn't refi within 30 days of the May 1 inquiry. He said that with my "excellent credit scores", the inquiries would not make any difference at all.

    So, my mortgage shopping is on hold until May 28th.

    Lesson I have yet to Learn: How many conventional lenders will automatically disqualify me because of my BK, even after the 2 year discharge period has passed?

    To be continued....
    Last edited by LadyInTheRed; 05-08-2017, 10:25 AM.
    LadyInTheRed is in the black!
    Filed Chap 13 April 2010. Discharged May 2015.
    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!

  • #2
    It's so ironic that you posted this. We have two properties. One that we live in and have a mortgage on and another that is paid for which my in-laws rent for $500 a month. I thought sure I'd be able to get a mortgage on a property that has no lien, but a lender just told me today that they can't help me for two years. I was really hoping to get some stuff done around my house this year but I guess I'll just have to wait.
    Filed Chapter 13 with lien strip on 2-28-11 * 341 held on 3-30-11 * First confirmation hearing held 4-20-11, continued until 5-25-11, continued until 6-29-11, continued until 8-10-11. Plan finally confirmed on 8-10-11!!!


    • #3
      LadyInTheRed - Thank you for your post. That is a lot of valuable information that iis asked for all the time (as you said). Any chance it can put in as a sticky (say 2017 Mortgage Refi info)..might be useful.
      If you've read my earlier posts, we refinanced in January from an ARM to traditional 15 year using FHA. Our Ch13 bk was discharged Aug 3/16. There was the extra cost of insurance (that we'll pay for 10 years) but i wanted to get locked in before the mortgage rates starting going up (also we paid our plan off early but it won't fall off our credit report till 07/19). We are in a 15 yr, 3.5% term. The other nice thing is our mortgage starting reporting after 60 days.
      One other thing people may or may not want to consider, per my mortgage broker who i've worked with for years is that it is actually easier to get an FHA mortgage and you get a little more in the way of financing than traditional mortgages. I don't know how true that is.
      Good luck starting the 28th, I know you have refi and remodeling you want to take care of/
      Last edited by sophieanne; 05-07-2017, 06:43 PM.
      Filed Chapter 13 - 07/20/12
      Discharged 8/2/16


      • #4
        Thank you very much LITR. I was thinking about a refinance but I'm still scared. Do you want to make this 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.


        • #5
          I made it a sticky.

          justbroke, if your credit is good, don't be afraid to look into a refinance.

          sophieanne, if I had 2 years to wait, I would definitely go for an FHA, even though I would probably have to spend some money to do some repairs in order to qualify. Rates are still so low, but probably heading up. So, I wouldn't risk waiting another 2 years.

          lolly78, it is frustrating to have all that equity and still not be able to use it. It's also frustrating to have equity, good income at a job where I have been for 15 years, less than 30% debt to income ratio and an excellent credit rating and not be able to get conventional financing. I just have to remind myself that the same thing that makes me have to wait a while longer is also what helped put me in the good financial position I am in after my past mistakes.
          LadyInTheRed is in the black!
          Filed Chap 13 April 2010. Discharged May 2015.
          $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!


          • #6
            Hope this help's someone. HARP ......... If you have a Fannie Mae loan

            Removal of bankruptcy and foreclosure policy: Fannie Mae is removing the requirement that the borrower (on the new loan) meet the standard waiting period and re-establishment of credit criteria in the Selling Guide following a bankruptcy or foreclosure. The requirement that the original loan must have met the bankruptcy and foreclosure policies in effect at the time the loan was originated is also being removed
            Last edited by mavric; 05-09-2017, 05:56 PM. Reason: add


            • #7
              What you have to watch out for are Lender overlay's.


              • #8
                my 2 year waiting period is up in june of 2017. would I qualify got a conventional loan or FHA? I would be a first time home buyer. I am not in a rush to buy. but rent here in NY is crazy expensive and I have two dogs. I am doing 10000% better and looking forward to he next chapter in my life.


                • #9
                  LadyInTheRed: You are spot on with each of those Lessons. You indeed must wait the full 2 years to obtain a Conventional loan after a Chapter 13 (purchase or refinance). As a lender, I work with many clients who experience the same frustrations. Many times, we will opt for the two step approach by refinancing 1+ day out of Chapter 13 with an FHA (despite the MIP fees), then make a plan to refinance into a Conventional loan as soon as the 2 year waiting period has been met. As to your last question whether a lender can disqualify you even after the waiting period has been met... Yes, they could, if they have "overlays" above and beyond Fannie/Freddie guidelines. Best to find a lender that follows Fannie/Freddie to the letter.
                  Mavric: You are also correct regarding the removal of BK requirements with a HARP refinance. However, you cannot obtain cash-out with a HARP loan as LadyInTheRed would like to do.


                  • #10
                    Originally posted by mavric View Post
                    What you have to watch out for are Lender overlay's.
                    Yeah, that falls under "what I have yet to learn." I locked on a 3.75% refi a couple of weeks ago. I am working with a direct lender and mentioned my bankruptcy. It didn't seem to be a problem as long as I was 2 years past bankruptcy. But, I am trying not to count my chickens until we have approval from Underwiting.

                    newchance15, two years after discharge of a Chap 13, you should be able to qualify for an FHA or conventional loan, depending on your other credit factors, income to debt ratio and loan to value ratio.

                    babsthebear, thank you for your input. If I had investigated refinancing the day after discharge, I very well may have chosen to go with an FHA for two years. As it turns out, I think I am probably doing about as well as I would have in May 2015 as far as a rate is concerned, so I am glad I waited. I think anybody in that position now should seriously consider an FHA. With rates as low as they are, it is a gamble to not take a low rate now, especially if you plan to be in your home for a long time like I do. HARP wouldn't be an option for me even without the cash out because my current loan is not a Fannie Mae or Freddie Mac loan.

                    I am crossing my fingers that my home appraises for at least $400K. I stopped at an open house a couple of blocks away on Saturday and was encouraged by the $540K asking price for a house only slightly larger than mine on a smaller lot. I was even more encouraged when I told the real estate agent about my home and the refi. He knew which house I was talking about and said that he agrees with Zillow's current estimate of $479K, even thought it needs a new roof. He was certain the appraisal would be will above the $400K I need.
                    LadyInTheRed is in the black!
                    Filed Chap 13 April 2010. Discharged May 2015.
                    $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!


                    • #11
                      My fingers are crossed for you Lady. Although I'm sure the last pieces of your refi will come together without a hitch!
                      Filed Chapter 13 - 07/20/12
                      Discharged 8/2/16


                      • #12
                        Originally posted by sophieanne View Post
                        My fingers are crossed for you Lady. Although I'm sure the last pieces of your refi will come together without a hitch!
                        Thanks, sophieanne. I got conditional approval from underwriting yesterday. I just need to answer questions about businesses they found associated with my address. One is my husband. I've never heard of the other five. Weird.

                        The appraiser comes Monday.
                        LadyInTheRed is in the black!
                        Filed Chap 13 April 2010. Discharged May 2015.
                        $143,000 in debt discharged for $36,500, including attorneys fees. Money well spent!


                        • #13
                          Mortgage Lenders will worry if any property is associated with a business LLC. They often require that if a property that is later transferred to a LLC, that the mortgage becomes due at the time of the transfer. Most commonly known as a "sales due clause".


                          • #14
                            We are in process of refi. Almost at 2 yrs from discharge but decided to go with FHA and see in 6 mos if converting to Conventional will work out. We are pretty much thru the underwriting process. Have had to turn in quite a lot in regards to BK but have had all documents requested. Appraisal has been done but need to come back as door to garage was not self closing. That has been fixed. Hopefully in next 2-3 weeks will be all done. Have option to pull some cash but not going to at this time. Our main objective was to lower the payment. Will feel good to know if something happened to either of us we should be able to keep our home. Rate of 3.75 locked in and looking at about $560 a month in savings. Life can be good after BK.
                            Filed ch 13 03/2012. Final payment made 03/2015. Discharged 8/04/15!!!


                            • #15
                              Caliber Home Loans thru their Fresh Start Program offers mortgage and refinancing to homeowners who has less than stellar credit, bankruptcy included. Google Caliber Home Loans Fresh Start Program.

                              One month post discharged of my CH 13, I refi my jumbo 1st mortgage using my VA benefits with Caliber as the lender @ 3.75%, 30 years fixed with $35k cashback that we used for needed repairs of the property. My broker mentioned that another veteran also received a 3.75% rate albeit with a different lender. The veteran's FICO 2 score was 760, while mine was 704. Just like LITR, my 2nd HELOC was stripped due to a the Ch 13 discharged.

                              Five months after the refi, I'm getting lots of junk mail solicitation for the VA's interest rate reduction and refinancing loan program (IRRRL). I'll stay put on this loan for 3 years, and if % rate goes down by another 0.5% to 1%, I might refi.

                              Disclaimer: I do not work nor affiliated with Caliber Home Loans.
                              Last edited by underh20; 07-16-2017, 05:32 PM.


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