Refinance House?

[NoMoney30]

Has anybody done a refi inside their chapter 13? We have an adjustable rate mortgage right now and its set to change next year and we're only 1.5 years into our 13. But the rates right now are soooo good! Are we allowed to refi? My mortgage is not paid in the plan but I'm not sure if a bank would even approve us... my credit is actually almost to 700 again (FICO) and I think we'd meet the minimum credit scores but with a chapter 13 sitting there...not sure how the banks feel about that right now?

[NoMoney30]

Oh I guess I kinda answered one part of my own question... I just read my confirmation order and it says this:
Upon entry of this order, all property of the estate shall revest in the Debtors. Notwithstanding such revesting, the Debtors shall not encumber, refinance, sell or otherwise convey real property without first obtaining an order of approval from the court.

[sophieanne]

Hi NoMoney30 - When we were in our 13, we too paid our mortgage outside the plan, and actually had an adjustable rate mortgage. The rate was so incredibly low it wasn't worth doing a refi. However, every year the trustee/attorney would get the notice of rate change from our lender and send a copy to us. Every year the attorney would write, might be a good time to refi..just contact me and I'll get the ok from the trustee. We never did, but the option was there. Your note above shows what you found..so you might want to contact your attorney and see if permission can be had without a large cost, etc.

[flashoflight]

Reality check: The lender I look at for non-traditional loans has frozen all of their specialty loans due to covid-19. When you look at the rate sheet and the lending matrices, they are all gone and replaced with a "coming soon" message. They are still doing traditional loans though but why go to a specialty lender when there are thousands of lenders for traditional.

[NoMoney30]

Reality check: The lender I look at for non-traditional loans has frozen all of their specialty loans due to covid-19. When you look at the rate sheet and the lending matrices, they are all gone and replaced with a "coming soon" message. They are still doing traditional loans though but why go to a specialty lender when there are thousands of lenders for traditional.

Sorry, what are you getting at?

[flashoflight]

Sorry, what are you getting at?

I don't think you can get a traditional mortgage while in a 13 since there are underwriting restrictions about x years after discharge. It was certainly possible to get a mortgage before C19 not subject to Fannie/Freddie rules, but those have dried up completely. There were some really cool programs like 1 day after BK discharge loans and such from nontraditional lenders but they disappeared a month ago.

[justbroke]

You can actually receive an FHA mortgage while in an active Chapter 13. FHA is, of course, a federally backed mortgage. It's the only (mainstream) mortgage program available to those in an active Chapter 13. The requirements for an FHA when in a Chapter 13 is only 12 months of on-time payments and approval of the Trustee.

FHA loans come with a minimum 3.5% downpayment (which can't come from the seller) with FICO scores above 580. However, overlays from lenders may increase this to a minimum of 620 or better (for your middle score). (Overlays are additional requirements put in place by lenders.) It can be difficult to find a lender, but there are specialized lenders that will do the 3.5% with a 580 middle score. You would be unlikely to obtain an FHA loan, while in a Chapter 13, from a mainstream big bank, but other direct lenders aren't shy about these loans. You can find many FHA lenders on sites like Zillow mortgage. (With a middle "mortgage" FICO score of 700 -- FICO 2, FICO 4 and FICO 5 -- you should not have overlay issues except for those dealing with a bankruptcy.)

As flashoflight writes, you would be restricted from "conforming" loans from the so-called GSEs (government sponsored entities) such as Fannie Mae and Freddie Mac.

I'm not saying it's easy, but it can be done with a lot of shopping around (and not just going to your favorite national bank). In fact, I wouldn't even start with the national banks (or most large credit unions). You may need to use a broker who can shop the loan.