Does A Chapter 7 Cover A Future Dil?

Lautermilch

LoanSafe Member
#1
I have heard that once you have a mortgage discharged in a Chapter 7 BK that if the property is lost via a DIL that you could get an FHA loan on the basis of waiting two years from the discharge date as opposed to the DIL deed transfer date.
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
#2
Yes, based on my understanding that is true.
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
#4
This is what LoanSafe's mortgage expert, Erik Sandstrom had said:

How do different programs view bankruptcy & foreclosure on the same borrower?

FHA
- FHA still considers bankruptcy & foreclosure 2 separate events, meaning if the foreclosure occurred after the bankruptcy or you included a home in bankruptcy that has yet to foreclose you're unable to obtain financing until the foreclosure seasoning periods have been met (3 years after foreclosure, short sale, DIL). It would not go by the bankruptcy seasoning periods if a property ultimately is lost or about to be lost.

Conventional - Recently Fannie Mae (not Freddie Mac) has come out with a rule that allows you to go by the bankruptcy seasoning periods (4 years past chapter 7, 2 years past discharge on chapter 13) if you included your property in BK and can provide proof through the bankruptcy discharge paperwork and schedules. This has honestly been a hit or miss for me recently, the reason why is because you MUST pass automated underwriting in order to be approved. If you receive negative feedback through that system it's an automatic denial. From my experience so far it's been about a 50% chance of obtaining approvals through this direction. Conventional programs start at 3% down now, I've heard of a borrower obtaining an approval with that - I've only worked on ones that are putting 5% down or more.

VA - VA is very similar to conventional where if you include the property in BK you can now go by BK seasoning periods. This would mean that you would only have to wait 2 years after the economic event occurred before you can obtain financing.

Hopefully this helps you understand what programs might work best for you and ultimately it depends on credit score, down payment and the above factors.
 
Last edited:

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
#5
HUD FHA Lender List

Bankruptcy – You may apply for a FHA insured loan after your bankruptcy has been discharged for TWO (2) years with a Chapter 7 Bankruptcy.


Foreclosure - You may apply for a FHA insured loan THREE (3) years after the sale/deed transfer date.

Short Sale / Notice of Default – You may apply for a FHA insured loan THREE (3) years after the sale date of your foreclosure. FHA treats a short sale the same as a Foreclosure for now.

Credit must be re-established with a 640 minimum credit score
 

Lautermilch

LoanSafe Member
#6
But what I had heard from a number of sources is that if you have the mortgage under the Chapter 7 then that is the clock use even if the property is lost after the chapter 7. I talked to one underwriter but nobody can find it in writing.
 

Lautermilch

LoanSafe Member
#7
I talked to a very intelligent underwriter who explained that the BK did cover the property but since the borrower signed for a DIL it restarted the FHA clock.
 

Moe Bedard

Call 1-800-779-4547
Staff member
Loan Safe Mortgage
#8
Gotchya - thanks for clarifying that!
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
#9
Just to jump into this thread because this is my expertise - FHA still to this day considers BK and FC/DIL two separate events. Meaning once the property does end up with the disposition of DIL those waiting periods would begin. Conventional would be the route to take in the situation you're mentioning. Conventional loans start as low at 620 FICO and start at 3% down.