Question Selling home and buying after chapter 7

[cas111404]

Hi Looking for some advice. Me and my husband filed for Chapter 7 and discharged 3 years ago. Our home was in pre-foreclosure and we had a loan modification done. We have been current and on time with all our mortgage payments since the modification three years ago. Our current home is worth around $615,000. We owe $347,000 on our mortgage. We would like to relocate from Ny to Pa. Our bankruptcy attorney had advised us that after two years we will be ok to do this. We will be putting close to 50% down on the next home. Anyone been in a similar situation ? Do you think we will be able to do this ? Thank you

[justbroke]

This information is as of April 7, 2021 and is subject to change if any federal programs, such as FHA, change their rules.

The date upon which you become eligible for a conventional, conforming, jumbo, FHA, USDA or VA loan varies. Generally it is as follows:

• FHA - 2 years from the discharge date of a Chapter 7. FHA loans have lower loan limits than conventional, conforming, or jumbo.
  • If you are going to buy a home over $356,362 in most areas, then FHA will not cut it unless you put a lot down to bring the mortgage value down into the FHA range.
  • There are some special areas for FHA that the limits can go up to $822,375 or more in the so-called high cost areas (Hawaii, Alaska, Guam, etc).
  • Unless the home is in one of the special areas, the limit will likely be $356,362 (Orlando, FL) or about $506,000 (e.g. Miami, FL). I use Florida only for a comparison between major metro areas.
• Conventional (Fannie Mae - FNMA) - 4 years from the discharge date of a Chapter 7 unless there are special circumstances.
  • If the mortgage was discharged in bankruptcy, then the bankruptcy period apply. Otherwise foreclosures will lengthen the time before a debtor qualifies for a conventional loan.
• Conforming/Jumbo (Freddie Mac - FHLMC) - 4 years from the discharge date of a Chapter 7 unless there are special circumstances.
• USDA - 2 years from the discharge date of a Chapter 7, unless there are special circumstances
• VA - 3 years from the discharge date of a Chapter 7

Bottom line is that it dependsas to whether it's just 2 years or it's 4 years (without special circumstances). You could certainly get into an FHA, but conventional mortgages could be interesting. For Pennsylvania (PA), the 2021 current limits for FHA are the $356,362 for most of PA except Bucks, Chester, Delaware, and Montgomery counties. In those exceptions, the limit is $431.250. Remember that's the limit for the actual FHA loan and not the limit for the sale price of the home. You can buy down the loan to be within the limits. Sometimes the 3.5% downpayment is enough to get the total loan within the limits.

Also, for FHA, you'll pay private mortgage insurance (PMI) unless the loan to value (LTV) is below 80%. There's an up front premium that you'll pay at closing (which you can finance), plus a monthly premium of about 0.85% per month on the principal balance. It will last for the entire life of that loan unless you refinance the loan.

For Conventional, there is no up-front premium for mortgage insurance, but there is (usually) the same 80% requirement. If you don't put down 20% then you'll pay a monthly premium of 0.86% to 1.86% (approximately) based on your score and other factors. However, that PMI expense will automatically stop once you hit 78% balance on your loan (you may or may not need to ask your creditor to remove the PMI).

Now, having wrote all that, since you plan to put down 50% you may as well go for the Conventional but you're not yet eligible. You can do the FHA as I think that even if you bought a $400K home anywhere in PA, that $200K down payment is going to give you a good cushion, and you'll avoid PMI. (I assume that after closing and commissions, you'll walk with ($615K - $39K in costs - $347K balance) about $229K in hand.

So, an FHA loan is absolutely possible and with anything over 20% down, you're going to get good rates and no PMI required. Shop the rates for the best. I was looking at Better (better.com) and they are pretty up front. Everything I saw at Zillow Mortgage appeared higher to me, but that may just be me. If you like local small banks, check out the credit unions.

I'm actually looking into buying another home now and have been doing a lot of research on this topic. Feel free to ask any questions. I may not have the answers and I'll tell you if I don't.

[cas111404]

Wow really great info I so appreciate it !!!!! I do have another question if you don’t mind. Currently my mortgage is with Wells Fargo. Is it easier to stay with them or do I shop around ?

[justbroke]

Always shop a mortgage around unless you have a strong affinity for your current bank. I'm starting to like "local" banks that don't sell the mortgage into large investment pools (mortgage backed securities). I have not, however, had a mortgage with a small local bank. I have only had Bank of America for my last 3 and one with Navy Federal.

The reason to shop a mortgage is to see who is going to give you the best price. The price comes down to fees -- and junk fees -- that they charge, as well as the coveted lender credits. But, you may be paying for those lender credits through higher interest or by buying points.

Check to see if a 15 year mortgage makes more sense as you'll get the lowest rates possible (and lowest APR because the rate and effective APR can be different). I don't know if FHAs all have the same basic rate, but buying points could lower your rate.

[cas111404]

Thanks again for the great info !