Underwriter questioning BK..

[OneDayRicher]

Hello all!

My 2 year bk is almost up.. on November 12. I am free! Yay!

I did speak with a loan officer from Loandepot. I am in the process of applying for a home pre approval.. but it has gone to underwriting... they are wanting a brief explanation of the extenuating circumstance that led to the bk...

Honestly, I'm stumped. I really dont want to say i was financially irresponsible. I didn't have any job loss. I didn't have any medical bills etc. Does anyone have any better explanation other than my irresponsible character with money?? I would greatly appreciate anything...!!

Thank you!

[shipo]

What kind of mortgage are you applying for? I ask because once you've hit that 2-year threshold, I believe, possibly incorrectly, the whole "extenuating circumstances" thing is no longer necessary for an FHA mortgage.

[justbroke]

You write whatever happened, literally. The economy, changes in job, unexpected or unanticipated expense led to inability to pay, price increases, taxes, taxes on taxes, fuel and energy, birds getting in the gutter, ad naseum. They just need it for the file.

The issue with FHA is that as soon as they see a bankruptcy, they have to downgrade the loan even if it came back as Approve/Eligible. Then all sorts of unpleasant rules kick in because the file is manually underwritten with the desktop underwriter. At least this is what I have learned recently. And, how much paperwork is requested, will depend on how well the underwriter knows the rule book. You don't want an underwriter that doesn't know all the specific rules.

(For example, shipo mentioned that you shouldn't need an "extenuating circumstances" letter. If this was a Chapter 13, I think that is true. However, you do need a letter of explanation for the bankruptcy. An extenuating circumstances letter is much more detailed and is usually to overcome what would normally be an explicit denial. One such immediate denial would be a foreclosure within 3 years of applying unless there are "extenuating" circumstances. The FHA Handbook doesn't adequately explain "extenuating" circumstances.)

It sounds like, at least, this lender is willing to try to approve the loan. There are some that won't touch these because they require manual underwriting.

(From the FHA Handbook, what they really are trying to document is that "the Borrower’s current situation indicates that the events which led to the bankruptcy are not likely to recur.")

[OneDayRicher]

Thank you so much for the replies!! I'm sorry I left out some crucial information, but yes. I am applying for a VA loan. I had filed ch 7 in mid Nov. I did apply for the home loan just a week sooner than my 2 year mark, so im not sure if that may be the reason for the explanation..

But yay! I feel so much better in my response, as I added a medical bill i just remembered and some dental expenses, and school expenses. This sounds so much better than me being financially irresponsible!

Thanks so much, I really do appreciate the prompt response! This forum is an absolute life saver! 😁