FHA Loans during Chapter 13 BK

[huskydawgs]

Hi:

I'm about 18 months in on a 60 month Chapter 13 BK repayment plan.


I've been reading about FHA loans and mortgages.

I just signed a new rental lease, but was wondering what it takes to qualify for a FHA loan? Could I possibly get one now if I start looking? Or should I just not bother and stick to renting until the completion of my Chapter 13 repayment plan.

[Flamingo]

You cannot get a mortgage or refinance during a Chapter 13 without Trustee permission. Contact your attorney and discuss.

[NowImDownInIt]

You can after one year in your 13 (with trustee approval, as Flamingo said) with perfect payment history and you will still need a middle score of 620 to 640 and you'll need to find a lender that works with these types of mortgages.

[rjd78]

As already mentioned, you can get a loan so long as you're a year in and have perfect payment history. Your middle FICO score has to be 620 or better.

I got pre-approved last week at 4.5%. You just need to call a few banks and ask if they handle FHA loans.

[huskydawgs]

It's wierd. On two different web sites my credit scores are different:

MyCreditHealth:
Trans - 619
Experian - 562
Equifax - 593

ID Guard
Trans - 619
Experian - 602
Equifax - 620

What could raise my scores? A secured credit card?

[Flamingo]

Have you reviewed all three of your credit reports to see if they are up to date as to your Chapter 13 being listed correctly? Also, what could also hurt you are any prior bad credit accounts before your filing date as they stay on your record for at least seven years and those, on top of a Chapter 13 filling, will keep your scores down. Time is your friend in this situation as that is about the only thing that will improve your scores while in a Chapter 13 and how you conduct all your plan payments and other bill payments (i.e., car, utilities, mortgage, etc.) during your Plan years.

Please also note with FHA mortgages and being a credit risk as to having a BK on your records...you will be subject to having five full years of PMI added to each mortgage payment which can increase your monthly payment substantially. Not too many people know about that and I researched it when we refinanced during our Chapter 13. Thankfully that will come off this coming spring as we refinanced in April 2006. And it doesn't matter how much equity is in the house - this is over and above the 20% equity situation. It added about $50 per month for five years to our mortgage payments and that is quite a bit of money when you are in a Chapter 13 and along with all the other fees and expenses required as to obtaining a mortgage or refinancing, it may not be possible for you. Also our refinancing was very low as we had a ton of equity we could not touch and we just refinanced for enough to pay off our Chapter 13 and put a new roof on our house, leaving a large amount of equity still in the house - thankfully we did that as it saved us through this housing market downturn. So if one obtains a higher mortgage or refinancing, the PMI monthly payment will be much higher than ours.

Talk to your attorney - if it is possible for you your attorney will advise you after reviewing your financial situation. In order to obtain a mortgage or refinance during a 13, you need Court approval. Your attorney will advise you if he/she thinks it is all workable to obtain information/approval from lenders so it can be submitted to the Trustee for review. It can be a complicated, time consuming process so start with your attorney for the best advice. Best of luck to you...

[rjd78]

It's wierd. On two different web sites my credit scores are different:

MyCreditHealth:
Trans - 619
Experian - 562
Equifax - 593

ID Guard
Trans - 619
Experian - 602
Equifax - 620

What could raise my scores? A secured credit card?

Here's the thing about credit scores that I learned. Those scores you posted above have no relevance towards getting pre-approved for a home loan. Those scores are those particular websites' own scores, using their own scoring model. It sucks because all these commercials lead you to believe that credit scores are universal, and they're not. At all.

The only credit scores that matter are your FICO scores. Those are the scores that lenders use to base their decisions off of. You can only get your FICO scores two ways:

(1) Go to www.myfico.com and purchase them for $15.95 a piece
(2) Have a lender pull your scores

The other thing is that you cannot see your Experian score from myFICO. Experian didn't renew their contract with FICO to allow users to obtain their own score. So, the only way you can see it is if a lender pulls it (stupid, huh? It's YOUR score, but YOU can't see it. Only lenders can).

At any rate, the process I went through was the same that Flamingo suggested. You can't get a secured credit card without trustee approval. I went ahead and corrected inaccuracies on my reports. Those sites you got your scores from above have accurate credit REPORTS, so you can use the reports obtained from there to dispute any inaccuracies on the reports.

It's a long, tedious process. You submit a dispute and then it take anywhere from 30-60 days to correct the mistake (if there is one). What I did was go with a company called Lexington Law. They're a law firm that specializes in removing inaccurate information from your credit reports. It cost me $50 per month and they basically nuke the bureaus with letters to remove all negative items from your report. Some things come off, some don't. But, it worked great for me as my TransUnion score (that's the one I needed raised) went from a 596 to 636 in about 5 months.

Granted, this is stuff you can do yourself, but I had no idea what I was doing and didn't really want to spend all the time disputing and writing letters and dealing with it all. So, this place worked out great for me.

I hope this information helps.