Bankruptcy affect on Mortgage interest rate

[francoboy]

My bankruptcy was discharged Aug 2016. What kind of an interest rate can I expect? My credit score is 677. I have low debt:income ratio. Been at my job for 30 years. I am really hoping to take advantage of these low rates.

[shipo]

Did you file Chapter 7 or Chapter 13?

[justbroke]

It's too difficult to tell because most of the conventional loans use something call Loan Level Pricing Adjustments (LLPA) which take into account many different factors. Those factors include your middle FICO score (or the lowest of 2 if they can only get 2 scores), payment history on debt (mortgage vs other debt), bankruptcy or foreclosure in the last 7 years, and even the loan to value.

If you're going with FHA, I don't think you have to worry about the LLPA feature. For FHA there is no risk built in the pricing like that LLPA, but you are limited to a lower total loan. The 2021 FHA limit for single family is $356,352 for most areas. If you exceed that it's either more downpayment to get to their limit or going to a conventional, conforming or jumbo loan.

The problem with FHA and conventional loans is Private Mortgage Insurance (PMI), with FHA probably being the worse. FHA charges both an up-front fee which is a percentage of the total mortgage (which can be amortized into the loan), and a monthly PMI fee. You can't get rid of the FHA PMI without refinancing. With conventional loans, bank can, using the LLPA feature, pay the PMI on your behalf by charging you a higher interest rates. Conventional loans can also stop paying the PMI after the loan is paid down below 80%.

I'm currently looking at buying another home so I have done a lot of research on this topic. But please be sure to check everything that I wrote. FHA has good features, low APRs that you normally can't get with a 620 score, and a no PMI (MIP) if the loan-to-value (LTV) is less than 80%.

As shipo may be eluding, a Chapter 7 will keep you from a conventional mortgage for 7 years. FHA has more relaxed guidelines and you meet those (anytime for Chapter 13 and 2 years for Chapter 7). If anyone mentions "extenuating circumstances" as a way to get around some of the guidelines please be aware that any really good and senior broker will tell you that they are extremely rare (like an eclipse).

[flashoflight]

FHA is the best game in town with no other competition coming even close for a bankruptcy filer. Think of it as a long term bridge loan with very good rates while you wait to become eligible for conventional and refi out.

Other options (all non-QM) and FHA hybrids like the renovation loans are way worse. There are loans for 1 day out of BK, but they will require 30% down and the interest will be double or even triple the going rate. Again you'd treat it as a bridge loan until you can get into standard FHA or conventional.

If you go down the FHA road, you must use a company that does manual underwrites and make sure they specialize in BK applications. Most lenders won't touch borrowers with bankruptcy. First question you ask is whether they do manual underwrites.

[francoboy]

I filed ch 7. And I am a little different in that I will be paying off my dad’s reverse mortgage. So I will be paying below value. Hoping for the best. I should hear next week🤞🏼