Wait Period after Discharge from Chapter 13 Discharge for Mortgage

[Johnworker1]

What is the wait period to satisfy conventional or FHA mortgage after a Chapter 13 discharge? I am expecting to get a discharge in a few months and wondered would I be able to refinance and repair my current home or sell and finance another more suitable home?

[justbroke]

It depends on whether your discharge of a mortgage included a foreclosure. Generally speaking, conventional mortgages require 2 years from the filing of a Chapter 13 (or 4 years from a dismissal). FHA allows a new mortgage after 1 year of on-time payments in a Chapter 13 or 2 years after a dismissal. I would not every try the FHA "exceptional circumstances" route because they are pretty strict (think death of wage earner).

If there is a foreclosure, that complicates things. You'll have longer waiting periods including at least 4 years for conventional and 2 years for FHA. Conventional, under Fannie Mae, has a special rule for foreclosures that were combined with a bankruptcy, but generally speaking, conventional is 7 years after a foreclosure (especially with Freddie Mac). FHA could be obtained 2 years after a foreclosure so long as HUD didn't suffer a loss (e.g., you're in CAIVRS system). If you are in CAIVRS due to loss on an FHA-insured mortgage, it could be 3 years to get off that list and obtain an FHA loan.

Again, and I repeat, the "exceptional circumstances" exceptions for FHA loans are nearly impossible to meet with death or severe bodily injury of the primary wage earner.

[Johnworker1]

My last filing of Chapter 13 (100%) occurred in 2017 and didn't include a mortgage. I had previous filings of Chapter 13 and in one of them I did step away from rental property. All of my previous filings (2010-2012) of Chapter 13's (3) including one of a Chapter 7 have fallen off my credit bureaus.

So while in an active bankruptcy FHA allows a new mortgage after 1 year of on time payments will that mean I won't have to wait after discharge since I have had on time payments for years?

[justbroke]

In an active Chapter 13 the FHA rules allow a new mortgage when you show 12 months of on-time payment to the Trustee. There may be issues during the twilight period of a Chapter 13. By twilight I mean the time between the last payment and the discharge/closing. It's better to get an FHA mortgage, in a Chapter 13, several months before discharge. The process can take longer than most people anticipate since it requires Trustee and court approval to purchase in an active Chapter 13 bankruptcy.

[Johnworker1]

In an active Chapter 13 the FHA rules allow a new mortgage when you show 12 months of on-time payment to the Trustee. There may be issues during the twilight period of a Chapter 13. By twilight I mean the time between the last payment and the discharge/closing. It's better to get an FHA mortgage, in a Chapter 13, several months before discharge. The process can take longer than most people anticipate since it requires Trustee and court approval to purchase in an active Chapter 13 bankruptcy.

My attorney just submitted the paperwork incl 522q for discharge and I will definitely wait until it is discharged and I can use some of the tactics posted on here to improve the credit scores. My score has seen a high of 722 (of the 3) until they started reporting my student loan in deferment which lowered it the highest to 688 last I checked.
How long (or short) is the typical twilight period?

[justbroke]

Twilight is the time between discharge an closing. It can be 60-90 days.

[Johnworker1]

How do I find out if I am in CAIVRS system? I just received my discharge.

[justbroke]

How do I find out if I am in CAIVRS system? I just received my discharge.

There is no way to know until you apply for an FHA-backed mortgage.

[Johnworker1]

My Ch 13 was filed on 3/2017 so if it removes after 7 years it should be removed 3/2024.If that is correct will I still have to wait 2 years after discharge (10/2023)?
Or once it drops off my credit files on 3/2024 I will be clear to apply for mortgage?

[shipo]

Assuming you were discharged in February of 2022 you should be able to apply now.

[Johnworker1]

It was recently discharged 10/2023.

[justbroke]

It was recently discharged 10/2023.

Since you state that you never had an FHA (or federally-backed) mortgage foreclosed upon, then you would not be in CAIVRS. (You could also be in CAIVRS for other reasons such as defaulting on student debt, but CAIVRS for student debt was reset under the CARE Act back in 2022.)

Technically you should be able to get an FHA now. The problem is going to be finding a lender that doesn't have too many overlays. One of the overlays is that some FHA lenders will insist it is 12 months from the discharge date. (Source: HUD https://www.hud.gov/sites/documents/4155-1_4_SECC.PDF) Specifically, some creditors read the 12-months of on-time payments in a Chapter 13 as 12-months from the discharge date.

I see nothing in the HUD guidelines that say that. However, the guidelines do say that even if the approval comes back as "Accept/Approve" it must be downgraded if 24 months haven't elapsed since the Chapter 13 was discharged. This means that the creditor must underwritten differently (using a direct endorser). Some creditors just don't want to deal with a freshly minted Chapter 13 discharge. (4155.1 4.C.2.h Chapter 13 Bankruptcy)

I'm sure there are a minority of creditors that would take on a freshly minted (Chapter 13) debtor, but I can't tell you the name of any lender. I would assume that large institutional lenders would take a pass. A credit union may even find it problematic.

For the reasons I have stated obtaining a mortgage shortly after discharge is more difficult than obtaining one before the discharge. At least, that's my opinion and anecdotal evidence would suggest.

[Johnworker1]

I am expecting the Bankruptcy to fall off my credit bureaus by 3/2024 (filed 3/28/2017) so I will wait and re evaluate then. If I have to wait 2 years from discharge that still won't be a big problem but I will wait and see.