Question for those that Purchased a home while in a Chapter 13

[Gonzo]

One interesting thing about my mortgage banker - she told me that they would finance me for an amount that was close to 50% more than the house I bought. Not only would I have to have a bigger down payment, bigger monthly payments, but the trustee would probably have blown a gasket.
So I told her Thank you but No, Thank you. I still think it was a rather odd offer to someone in Ch 13.

She may have been referring to a "Chapter 13 Buyout." This is where you refi your loan and use the excess funds to pay off the bankruptcy creditors immediately. And then you're done. This used to be very popular, but with the increase in required credit scores and decrease in property values, most borrowers cannot qualify.

[Flamingo]

FHA always has the MIP regardless of the initial property value. The only exceptions are for some borrowers who get a 15 year loan and put down 10% or refi with 10% equity.

The MIP had nothing to do with your bankruptcy. It's a HUD requirement for everybody. HUD believes all FHA borrowers are higher risk. Those who have been bankrupt and those with perfect credit all pay MIP and they all pay the same amount of MIP. You could be a borrower with perfect credit with no history of anything negative ever, and in the situation you cited, you would still pay the MIP because it's just part of the FHA program. The computer calculates everything automatically.

Hope this makes sense. Somebody did a poor job of explaining this to you - as often happens with mortgage insurance and FHA. But the paperwork borrowers sign at application and closing has a detailed explanation of the insurance.

The main thing is that we knew nothing about the five year PMI situation prior to receiving documents for review prior to settlement as we also had to provide all that documentation to the Trustee for review as we were still in Chapter 13. There can be surprises for those taking out FHA loans or those in any high risk category and it is important to get all the information one can prior to settlement to avoid issues - if we saw this charge at the settlement table and not in advance there may have been problems or delays because we were advised our monthly payment would be "X" amount and not $50 some dollars higher as listed. Those in BK may be anxious to refinance or purchase a house, but may be encumbered by additional costs or fees which can create problems due to their high risk making purchase or refinance difficult or not possible.

[Gonzo]

The main thing is that we knew nothing about the five year PMI situation prior to receiving documents for review prior to settlement as we also had to provide all that documentation to the Trustee for review as we were still in Chapter 13. There can be surprises for those taking out FHA loans or those in any high risk category and it is important to get all the information one can prior to settlement to avoid issues - if we saw this charge at the settlement table and not in advance there may have been problems or delays because we were advised our monthly payment would be "X" amount and not $50 some dollars higher as listed. Those in BK may be anxious to refinance or purchase a house, but may be encumbered by additional costs or fees which can create problems due to their high risk making purchase or refinance difficult or not possible.

I agree that many loan professionals do not do a good job explaining MIP. However, at the same time as I mentioned before, I wanted you and others to know there are no extra FHA costs for any group of borrowers. FHA has one risk pool. Sounds like you had a "not so good" person working with your loan. FHA wasn't the problem. It was the person helping you. And that person might have screwed up regardless what kind of loan he/she was working with. There is no excuse for the MIP not beng clearly visible on your application, your payment calculation, and many other places in the application process. That's flat out weird. There is a place for it on the 1003 mortgage application prominently displayed at the top right corner of the second page.

Take a look at a 1003 mortgage application here:

http://www.agstarhome.com/SiteCollectionDocuments/1003App.pdf

Notice the field for "mortgage insurance." If this field was blank on your intial paperwork, again, it is not FHA that did wrong by you, it was the person and company you were working with. Perhaps he/she was a 1st day newbie, AND they were doing documents by hand. Because MIP for FHA is mortgage 101. You don't pass go w/o it. Everybody pays it, not just Chapter 13 borrowers.

I closed over 2000 FHA loans in my career and this was never an issue. People had to know this additional amount was included because they had to get qualified based on that extra amount.

It is awful that you found this out at the last minute and it shouldn't have happened. But it was an isolated incident, as opposed to anything intrinsic with FHA. I would hate for others reading these posts to believe that somehow FHA trys to entrap people in any way. FHA has helped millions of people buy homes and refinance loans they otherwsie would not have been able to do. The rules are made very clear by FHA, but the umbrella of FHA cannot control how ill-trained some people may be who are mere third parties in the process.

People should carefully examine the paperwork for any contract they sign regardless what they are buying. Frankly, not reviewing the paperwork for a government-backed mortgage is far less likely to be problematic than other mortgage loans. FHA and VA have many built-in protections for borrowers that other loans do not. "Surprises" with mortgages can happen with any borrower with any type of loan at any time.

Hope I'm making some sense here.

[Flamingo]

Your post is very informative and I do not recall what was listed on forms filled out in late 2005 as it was at least a six month process from start to finish to initiate the process (the Thanksgiving/Christmas holiday season and trustee vacation did not help), submit paperwork, get approved, paperwork submitted to Trustee for approval, Motion scheduled and heard, attend settlement and pay off our 13. However, the amount on the paperwork we received prior to settlement and after the trustee approval indicated a higher monthly payment amount than we were previosly given and the reason was the inclusion of five years of PMI. How or why that occurred is moot at this point and the purpose of my posting is just to inform anyone looking to refinance or purchase a home while in Chapter 13 that there are going to be additional costs/fees that one may not expect that will increase monthly payments over and above principle and interest, that the process is time consuming and could take a while as trustee approval is required and a Motion filed to allow the purchase/refinance. There would even be a charge for the Motion - it was $400 for us.... And to double check all figures as there will be a ton of paperwork that has to go back and forth between you, the broker/bank, attorney and trustee.

[Gonzo]

Your post is very informative and I do not recall what was listed on forms filled out in late 2005 as it was at least a six month process from start to finish to initiate the process (the Thanksgiving/Christmas holiday season and trustee vacation did not help), submit paperwork, get approved, paperwork submitted to Trustee for approval, Motion scheduled and heard, attend settlement and pay off our 13. However, the amount on the paperwork we received prior to settlement and after the trustee approval indicated a higher monthly payment amount than we were previosly given and the reason was the inclusion of five years of PMI. How or why that occurred is moot at this point and the purpose of my posting is just to inform anyone looking to refinance or purchase a home while in Chapter 13 that there are going to be additional costs/fees that one may not expect that will increase monthly payments over and above principle and interest, that the process is time consuming and could take a while as trustee approval is required and a Motion filed to allow the purchase/refinance. There would even be a charge for the Motion - it was $400 for us.... And to double check all figures as there will be a ton of paperwork that has to go back and forth between you, the broker/bank, attorney and trustee.

Yes, these transactions take a while because of all the players involved. It's never fast. But you got it done. Some people can't get a basic loan closed.

Have a great Holiday.

[getback]

Yes, these transactions take a while because of all the players involved. It's never fast. But you got it done. Some people can't get a basic loan closed.

Have a great Holiday.

I am thinking about purchasing a home right now. Looking to get further understanding from trustee what amount i can change my payment by to buy something.
But the bigger question is, I am about 3year and 3 months in.... Do I wait until I am discharged or do I jump in now considering how good the market is for buyers..

[Flamingo]

I am thinking about purchasing a home right now. Looking to get further understanding from trustee what amount i can change my payment by to buy something.
But the bigger question is, I am about 3year and 3 months in.... Do I wait until I am discharged or do I jump in now considering how good the market is for buyers..

The best thing for you to do is to sit down with your attorney and go over your finances to see if it is even possible for you to purchase a home. We started the process of refinancing when we were three and one-half years into our plan and the settlement itself occurred at what would be our 4th year anniversary of filing. Purchasing or refinancing a home is not an overnight thing while you are in BK due to all approvals needed, paperwork, etc. While the market now is a buyer's market, your BK will make it a bit more expensive for you in the long run so you will need to figure out where you stand now compared to where you may stand after discharge and a few years after as your credit rating increases. Best of luck to you...