Applying for mortgage - need Letter of explanation

[shanidane]

Hello - My husband and I filed chapter 7 bankruptcy in 2009. We also included our home in the bankruptcy so it's actually considered a foreclosure. We have been waiting patiently to buy another home and now is the time. We have worked hard improving our credit scores and our debt to income ration is low. We are basically pre-approved but now we are getting into the nitty gritty with underwriters. They want a letter of explantion as to why we filed bankruptcy and foreclosed on our home.

To make a long story short...we did not have unforseen circumstances or loss of jobs that caused us to file. Basically we were young and dumb. My husband and I have been together since high school, we bought our first home at the age of 19. We had 2 kids and kept our jobs for years. We were not responsible with credit cards and how we managed our money and after years of trying to keep up with all our debt, we decided on a fresh start and filed bankruptcy. We were upside down in our home and chose to include that in the bankruptcy also.

How do I explain this without sounding like an irresponsible idiot? We are now almost 40 years old and now know that we would never put our family in that type of debt again.

I dont want this letter to make or break their decision. Any help with this would greatly be appreciated...thank you!!

[df04527]

In my experience honesty is the best policy. There is nothing wrong with being young and stupid and acknowledging that. In fact I think that type of honesty tells me, you have learned some hard lessons on fiscal management and you are, more than likely, not that high of a risk because of those hard lessons.

Just my opinion of course.

[tobee43]

Hello - My husband and I filed chapter 7 bankruptcy in 2009. We also included our home in the bankruptcy so it's actually considered a foreclosure. We have been waiting patiently to buy another home and now is the time.

well, no, just because you listed your house and it was IIB, it's not actually considered foreclosed, unless it was actually forclosed

when the house is foreclosed your name is removed from the deed and transferred to the new owner, whether that's a person or the lender. however, if the house didn't go through the foreclosure process it's still in your names and when you apply for a mortgage at some point a title search will be done and it will show up.

now this is an extremely controversial subject matter as far as i'm concerned. because a bank chooses not to foreclose and the house is still in your name how does that effect you ability to get another mortgage? i have heard 3 years from this date, 2 years from that date...i just read a story of someone that had their discharge in 2007 was told 2 years, tried again in 2009 then was told no, it's 3 years from the time of your bk. they waited another year and then tried again and was told no it's another year because you had a foreclosure. they still didn't get a mortgage! ) this is a TRUE story! please, i'm not trying to discourage you, i just want you know it may be a tough road ahead, because even people with perfect credit are being turned away. you may be one of the lucky ones.

i best advise i could give to you is find a mortgage broker that works with these situation and call a few! there are many in the same boat as you looking to get back into the market, the problem is the lenders are simply NOT lending, on their defense ( and i HATE THEM ALL) but on their side of it, they are being told START lending but do not take any risks when your lending, now that's a joke how many into today's economical times are no risk ...AND i even know someone with over 800 fico score that couldn't refi...go figure. no rhyme to the reasoning. best of luck to you! i'm sure something will turn up.

[shanidane]

We are getting an FHA loan...even though we included our home in the bankruptcy it still has to go thru the foreclosure process. Yes you do have to wait 3 years after the title has been transferred out of your name. We are past the 3 year mark now and have worked hard on improving our credit. I am just having a hard time trying to explain why we filed. We were just young and dumb, as years went by we just could not stay afloat.

[tobee43]

doesn't make that much sense, financial difficulties, loss of job whatever, however stating you were young and dumb isn't really what they are looking for. you really don't want to indicate you were irresponsible.

if you want to go that route, i would word it carefully. good luck getting your loan, i wish you the best! make sure you keep us posted on your progress!

[shanidane]

How does this sound....I spoke the truth just tried to word it correctly. We are over our 3 year period if we have made all the right moves do you think they can still deny?


I am writing a letter to explain why we filed bankruptcy and foreclosed on our home in 2009. My husband and I have been together since high school and bought our first home when we were 19. We were very young when we started out and did not know how to budget money. We did not manage our finances correctly and made poor financial decisions that effected us in years to come. We struggled for years trying to pay down our debts but eventually we were overwhelmed. We made the painful decision to file bankruptcy and start over again. Since then, we went through credit counseling and learned how to budget our money so this will never happen again. We have worked hard to improve our credit and learned from our mistakes. We hope you will give us the opportunity to own a home again.

[df04527]

I say it's perfect. Good job.

[tobee43]

sounds really good!!!!! i have my fingers and toes crossed for you!!

[Logan]

Run it by your loan officer 1st. I close tomorrow on a home and I kept my explanation very very simple. I always think less is better and if they want details they can ask.
Good luck

[tobee43]

Run it by your loan officer 1st. I close tomorrow on a home and I kept my explanation very very simple. I always think less is better and if they want details they can ask.
Good luck

EXCELLENT advise Logan!! the fewer the words one uses the fewer one has the words to use against you.

[downsized]

We've just gone through underwriting and our mortgage broker said "short and sweet". We had to write 2 letters. We have a one sentence explaination for each. Good luck!

[Strapped4Csh]

We just went through underwriting as well, and we also went the short and sweet route. One thing to be prepared for that we learned the hard way - FHA doesn't look at the foreclosure date (transfer of deed) for eligibility, they look at the date that a claim was paid out by them to the lender. In most cases, the dates are relatively close so it never becomes an issue.

In our case, that date was a few months after the deed transfer. Once the three years are up, the case has to be cleared from the CAIVRS registry (the registry that tracks federal debt delinquency - up until about 2 weeks ago I didn't even know it existed.). It is supposed to automatically clear within 45 days of your eligibility date, but if you need it before then it is a relatively simple process, but one that the lender may not be too up to speed on, and one that the HUD resource center doesn't really want to help you with either.

Best of luck - it's a certainly a long road, but if you have all your ducks in a row, it really should go pretty smoothly.

[tobee43]

interesting Strapped4Csh...what if FHA never paid out on the loan??

i am being to wonder if there is a a time limit for lenders to put their claims to FHA. i know i called them and they said nothing still on mine after 5 years. but what i didn't ask the is how long does the bank have to file the claim????

[shanidane]

Thanks for all the input everyone...just wanted to let everyone know that we are officially approved!! The underwriters came back on Monday with the go ahead!

[tobee43]

Excellent!!!!!!!!!!!!!!