Q: In November of this year we will have reached our second year after our bankruptcy. We would like to move out of our home at the end of this year, but we are not sure about getting approved for a home loan. We will have at least 10% to put down. We are underwater about $60-80,000 on our current home. Purchased for $186,000 and most likely they are selling around $120,000 or lower. This year we have recovered from our dept and are on a good road. Can we get approved? What should we do with our current home? Help.
?DB, Plymouth, MN
A: You may be able to finance the purchase of a home two years after you have received your bankruptcy discharge, but you may qualify as early as one year after filing Chapter 13, or one year after discharge in Chapter 7.
Since a large proportion of home loans depend on FHA or VA loan guarantees, your ability to qualify for those guarantees may determine when you are able to obtain a home loan.
The FHA will insure mortgages to individuals who have filed Chapter 7 liquidation bankruptcy two years after the discharge if ?the borrower has re-established good credit (or has chosen not to incur new credit obligations), and has demonstrated an ability to manage financial affairs.?
With a good credit score you have many options for obtaining a loan. FHA, RHS, VA (if you have Veteran status), State and Local programs along with Conventional conforming or non- conforming loans should all be potential options for you.
The FHA has their own guidelines for loans they will accept. Keep in mind that FHA is not a bank; it?s a government agency that insures loans from FHA approved lenders. While the FHA will have its rules, a bank will also have its own rules as well. Most banks today are only willing to finance FHA loans with credit scores of 640 and above. The FHA however will allow loans with credit scores as low as 540 with 20% down. Also, the FHA will require that you put down a minimum of 3.5%.
Conventional loans are typically for borrowers with money to put down (10-20%) and good credit scores. Most lenders in today?s market require a middle credit score of 660 or better to qualify for a conventional loan. To get your best deal you will need a credit score of at least 720. Since conventional loans are approved through underwriting engines created by Freddie Mac and Fannie Mae, the higher your credit scores are the better terms (rate) you will get.
Conventional loans currently require a minimum of 5% down. Interview mortgage brokers and obtain recommendations on them to find the one that works best with you. Your new mortgage broker will then be able to show you an entire suite of loan options.
Good Luck!
Lee Dworshak is a Realtor? with Keller Williams LA Harbor Realty in Rancho Palos Verdes, CA.
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- Where Can I Go To Qualify For A Loan If I Have A Low Credit Score?
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