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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, 07:25 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!

    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!!!


      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, 03:43 PM.
      Filed Chapter 13 - 07/20/12
      Discharged 8/2/16


        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

        Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.


          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!


            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, 02:56 PM. Reason: add


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


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