Bankruptcy of Chapter 13 is the protection of consumers from the collection of debt. Unlike Chapter 7 Bankruptcy, where assets are sold to recover losses on debts, Chapter 13 bankruptcy restructures debts and presents a strategy of repayment of all debts – including an outstanding FHA one-time close program. It is possible to get a mortgage loan while in Chapter 13 bankruptcy, but usually only a refinance, not a mortgage purchase.
Many lenders offer hardship programs for their mortgage clients. These programs are usually short-term (six months) which allow the borrower takes (like those in bankruptcy) to get back on their feet. Hardship programs are proprietary, and it is at the discretion of the lender how each program is administered. In some cases, a mortgage rate has fallen to zero percent, which significantly reduces the mortgage payment. Hardship loans are not guaranteed and most consumers must fully document the reasons and the need for relief.
Banks and credit unions, which normally meet customers with excellent credit, will most likely not refinance any consumer currently in a Chapter 13 repayment plan. However, finance companies, like Wells Fargo Financial and CitiFinancial, sometimes offer these programs. Borrowers seeking refinancing while in Chapter 13 must submit a solid repayment record on Chapter 13’s plan, good assets, and a solid stream of income. It is important to consider the costs of high risk refinancing. The fees and interest associated with these loans are often well above the national average.
FHA one-time close program
The FHA, or Federal Housing Administration, is the federal government’s lending service. Approved FHA one-time close program lenders are sometimes empowered to finance consumers currently in Chapter 13 bankruptcy. In these cases, most consumers are required to submit at least 12 months of on-time payments on their court-ordered repayment plan. FHA refinance in Chapter 13 are rare, however. The federal government insures each FHA one-time close program (which means the lender is paid back for all the default values), so the government will want to make sure any loan is solid before granting an authorization.
Credit Requirements for a Mortgage
When buying a mortgage, the borrower must meet several basic criteria, including income, employment, assets and credit score requirements. Each type of loan varies as to what the specific requirements are for each variable, however, some basic requirements are true throughout the mortgage industry in terms of credit score and credit report of the borrower.
For most government mortgages, such as FHA, VA and USDA mortgages, a borrower must have a minimum credit rating of 580 in order to qualify for debt. Most conventional mortgages, however, require a borrower to have a minimum score of 620. It should be noted that if a borrower requires PMI (private mortgage insurance) for his debt, because of the fairness in the Owned less than 20 percent, he must have a credit score of 720 to qualify for a conventional mortgage.
A lender also looks at a borrower’s credit report to determine his willingness and ability to repay new mortgage debt, regardless of the borrower’s credit rating. Any negative items, such as bankruptcies, liens, judgments or collections may be required to be paid in full prior to the acquisition of the new mortgage debt. In addition, for every 30 days late payment on the past mortgage of a borrower, the borrower will have to wait a full year from the last 30 days late payment to secure a new mortgage debt.
The rate of interest of a borrower is determined by the program chosen, the net worth of the property and its credit score. The higher the credit score, the higher the interest rate, and vice versa. It is in the best interest of the borrower to try to increase his credit rating before obtaining a new mortgage debt in order to qualify for the best interest rate.