Mortgage Eligibility - Chapter 13

[mormand]

Hi,
I'm about to file for a Chapter 13. Rent rates are insanely high here in Southern California. Currently paying $3,600
A few questions:
1. When would I be eligible to apply for a mortgage loan? (just before filing, 12-24 months after, or until the plan is done?)

2. The only reason I say 'just before filing' as an option is because my attorney said that it would have been best if I had a mortgage now, since Chapter 13 is not easy on renters. Would I even have an option into getting into a mortgage before filing?

If not, would I be able to qualify for a Mortgage while in the 5 year repayment plan?

Thanks!

[justbroke]

Once you are in a Chapter 13 bankruptcy you may apply for an FHA loan after there has been 12 months of consistent on-time payments to the Chapter 13 Standing Trustee. You would need both Trustee and Court approval.

As for strategy, listen more closely to your attorney. It's difficult to convince the Trustee (and therefore the creditors) that you need a $5,000+/month mortgage when your current non-mortgage rent is $3,600/month. In the eyes of the Trustee/creditor, you would be receiving an unfair leg-up at the expense of the unsecured creditors. This is driven by the cost to own property is traditionally more than the cost for rent (taxes, insurance, principal, interest, repairs).

The real answer is all three of those options you listed.

The question becomes whether anyone would lend to you at this present time. You would need to meet the the rigors of lending in this current market. While FHA loans down to 580, most banks will still want a 620 middle score. You will need to have adequate collateral (the property being purchased) and sufficient reserves and seasoned funds for the downpayment.

Purchasing prior to filing would certainly delay your filing should you choose to attempt to obtain a conventional or FHA mortgage.

[Carmella]

I am not an expert these are just my thoughts as someone who went through almost 5 yr of Chapter 13. Buying a house might bring a host of other problems such as any unexpected repairs.

I would think about why you would want to rush into purchasing a home. My personal opinion is to wait it out since there are unexpected things that happen and you might not have the cash to pay for repairs or even normal things that you need to buy when you first buy a house. Would you even be thinking about buying a home if the attorney did not bring it up? What is the advantage?

If it ain't broke don't fix it. If you are ok with your living arrangements I wouldn't rush to buy a house unless you find a really good reason because it's not easy to maintain and repair a home during the BK, at least it a big stress in my household.

[justbroke]

I agree with Carmella. If you're going into a new Chapter 13 and are not used to the "pains of ownership" then I would not want to visit that upon a newly minted Chapter 13 debtor.