Question for those that Purchased a home while in a Chapter 13

[Motivedmom5]

Has anyone purchased a home while in a Chapter 13? If so, can you give me a rundown on what was your credit score, how long you were in the 13 when you purchased, company financed through.

[lrprn]

You didn't say if you already own a home and if the new home you are thinking about buying will (1) pay off everything you owe on the current home now when it sells; and (2) if you'll make enough profit from the sale to put down at least 20% on the new home. That's the typical downpayment rate for folks with dinged credit across the country, not to mention being in a current bankruptcy which makes getting any kind of loan immensely more difficult and expensive.

Frankly, regardless of whether you own a home now or not, if you have the money to support buying a home while in an active Ch 13, you must have your trustee's permission first. At that point your trustee is likely to start asking where you are getting the money to buy a new home if you are putting all your disposable income into your plan. Putting yourself voluntarily on your trustee's radar this way is typically a bad idea unless you have no choice (your company is moving you to another city, for example).

Your lawyer knows your financial situation best, so contact him/her and ask your question. My guess is that you'll be told voluntarily pursuing buying a house during an active Ch 13 is not a good idea.

[Flamingo]

In order for anyone in a Chapter 13 to make any sort of large purchase such as a car or home, or to finance anything, trustee permission must be obtained - there is no mortgage company or vehicle finance company/bank that would touch someone in a Chapter 13 without that permission. If you are in a Chapter 13 and have the funds on hand to purchase a home, your trustee will certainly want a complete explanation. Please discuss in full with your attorney...

[fslady]

Trustee gave permission!

I'm late to this thread but wanted to let the Original Poster know that it is possible. I purchased my house where I had been renting and living for 8 years. My landlord wanted to sell and helped with closing costs, and finding a mortgage banker. I worked with my attorney and the trustee allowed my daughter to "gift" me with the FHA downpayment.
With 18 months into 60 months of payments with no late payments (usually early), and proof that the mortgage and escrow payment would be little more than rent in our area - the trustee approved the purchase! My credit score was 700 since I filed with nothing late or bad on my credit cards - but it would have been soon if I hadn't filed.

Now I'm 3 years into home ownership and just 2 BK12 payments to go!

Good Luck if you read this late post and decide to try for trustee's permission.

[Motivedmom5]

Thank you fslady. I was wondering if it was at all possible. If you don't mind me asking who financed your mortgage.

[getback]

how much did your payment change? I would like to know what is reasonable to the trustee for this change

[MajorMike]

I too got to purchase a home as well with trustee permission. My trustee never questioned an increase in income either. I made $8,000 more last year, told my attorney, who told the trustee and he didn't care. Said, don't rock the boat, keep things to yourself and keep paying what you're paying. In New York, they have so many BK's, they don't have the time to police which is cool for me.

[fslady]

Sorry - I haven't been here in a few days and just saw your question.
Chase financed the mortgage - but it is backed by FHA and required a 2% (I think) down payment. The only thing that is different is that I cannot have the monthly mortgage payment drafted from my checking account because of some technicality. Instead, I have electronic payments set up which is okay because I initiate the payment rather than the bank.

[fslady]

My payment didn't change at all. I was able to show that the monthly mortgage payment would be about the same as rent in our area and that I would just switch from renting to owning.
My lawyer handled the entire trustee permission request and everything went wonderfully smooth.
Good luck to you and to "getback".

[Gonzo]

As others stated, FHA is the way to go. You'll need 3.5% down or a relative to gift you some or all of it. You sohuld be able to get a credit from the seller for some or all closing costs.

FHA sets the rules governing approval for the mortgage. FHA means HUD. Lenders often overlay a few of their own rules, but it's FHA that permits this financing in your situation. So, it does not always matter where you go to get the loan. (Though sometimes :-) it does.) I always recommend people use a smaller mortgage broker because you will usually get better, more personal service and response. The big banks can be awful with response times. Nothing is 100% but it happens far more often than not.

You should select a lender based on how you are treated and how your questions are answered when you phone them to inquire about a mortgage.

To qualify, most will require that you not be late to anyone since the bankruptcy started and they may require on time payments to the trustee for 12 to 18 months. Plus you'll need the minimum credit score, - usually 640 middle score.

Call around to talk to a few lenders and be certain you get an experienced rep who knows the rules and knows how to close a loan like yours. If they start talking like Porky Pig, move on. You can also go to Zillow and put in a request for a quote. Lot of mortgage pros there.

Good luck.

[Flamingo]

Also please note that anyone in or coming out of BK and looking to get a house - if it is a FHA mortgage, you will bit hit with mandatory PMI to be collected at settlement and also for the first five years of the mortgage and it will be added to monthly payments. There is no way out of this as it is required by the FHA - happened to us when we refinanced and doesn't matter how much equity one has in the home. The PMI payment automatically was removed at the five year anniversary of our first payment. Our refinance loan was not large ($116,000) and the PMI monthly payment was close to $50 per month for five years - so be prepared.

[Gonzo]

Also please note that anyone in or coming out of BK and looking to get a house - if it is a FHA mortgage, you will bit hit with mandatory PMI to be collected at settlement and also for the first five years of the mortgage and it will be added to monthly payments. There is no way out of this as it is required by the FHA - happened to us when we refinanced and doesn't matter how much equity one has in the home. The PMI payment automatically was removed at the five year anniversary of our first payment. Our refinance loan was not large ($116,000) and the PMI monthly payment was close to $50 per month for five years - so be prepared.

That is fact Flamingo. And the MIP for FHA is much more per month now than it was when you purchased your home. Guidelines have changed frequently over the prior 3 years.

However, conventional loans can have also have mortgage insurance. And if the borrower's credit score isn't very high, conventional mortgage insurance is much more than FHA. For any borrower who does not have 20% down and does not have a minimum credit score of 700, FHA beats conventional hands down - even with the MIP.

In exchange for FHA being much more lenient than Fannie/Freddie, the borrower must pay MIP. This allows them to buy a home. For those that don't have 20% down and can't qualify under any better program, FHA does the job. All the upfront and monthly mortgage insurance premiums are disclosed to the borrower when they apply and are included to determine qualification. It is so important that borrowers review all the paperwork and ask questions. FHA mortgage insurance is a much misunderstood beast.

HUD guidelines say the borrower will pay the MIP for a minimum of 5 years. And it won't be canceled until the loan is paid down to 78% of the lower of the purchase price or the appraised value. This means that should your home double in value after you close, you will not be able to drop MIP until 5 years have passed. Anyone in this situation should refi to a conventional loan asap.

It is a pain in the butt charge, but it allows many people to buy a home who otherwise could not. Lately, FHA delinquencies have been so high, HUD claims the insurance fund is short. I don't believe it though. I think the insurance funds are being appropriated for other government programs/services.

[Flamingo]

We didn't purchase our home - we refinanced for $116,000 in 4/06, 6.5% (average going rate at that time) (FHA mortgage) and our home had an appraised value of $215,000 at that time and we only owed $30,000 on our mortgage (we paid off our Plan one year early with this refinancing due to the funds being needed for major, much needed roof and house repairs). The large amount of remaining equity of $99,000 did not eliminate the 5 years of PMI we had to pay for five years. So even if you have equity exceeding the required 20%, the mortgagees' risk is high due to the recent bankruptcy and the lender protects itself due to that risk. We questioned this and thoroughly went over it with our broker and bankers and thoroughly researched it online. It's due to being such a high credit risk at that time even though our scores were in the 670 range even while in BK. Just be prepared for surprises such as this and to totally review the Truth in Lending Statement and don't hesitate to ask questions.

[Gonzo]

We didn't purchase our home - we refinanced for $116,000 in 4/06, 6.5% (average going rate at that time) (FHA mortgage) and our home had an appraised value of $215,000 at that time and we only owed $30,000 on our mortgage (we paid off our Plan one year early with this refinancing due to the funds being needed for major, much needed roof and house repairs). The large amount of remaining equity of $99,000 did not eliminate the 5 years of PMI we had to pay for five years. So even if you have equity exceeding the required 20%, the mortgagees' risk is high due to the recent bankruptcy and the lender protects itself due to that risk. We questioned this and thoroughly went over it with our broker and bankers and thoroughly researched it online. It's due to being such a high credit risk at that time even though our scores were in the 670 range even while in BK. Just be prepared for surprises such as this and to totally review the Truth in Lending Statement and don't hesitate to ask questions.

FHA always has the MIP regardless of the initial property value. The only exceptions are for some borrowers who get a 15 year loan and put down 10% or refi with 10% equity.

The MIP had nothing to do with your bankruptcy. It's a HUD requirement for everybody. HUD believes all FHA borrowers are higher risk. Those who have been bankrupt and those with perfect credit all pay MIP and they all pay the same amount of MIP. You could be a borrower with perfect credit with no history of anything negative ever, and in the situation you cited, you would still pay the MIP because it's just part of the FHA program. The computer calculates everything automatically.

Hope this makes sense. Somebody did a poor job of explaining this to you - as often happens with mortgage insurance and FHA. But the paperwork borrowers sign at application and closing has a detailed explanation of the insurance.

[fslady]

One interesting thing about my mortgage banker - she told me that they would finance me for an amount that was close to 50% more than the house I bought. Not only would I have to have a bigger down payment, bigger monthly payments, but the trustee would probably have blown a gasket.
So I told her Thank you but No, Thank you. I still think it was a rather odd offer to someone in Ch 13.