August 2014 UPDATE: Fannie Mae has made a significant change is how it views mortgage debt included in Bankruptcy.
Now, if you had a foreclosure, short sale or deed in lieu of foreclosure after the Bankruptcy, the waiting period to buy again begins from the Bankruptcy discharge date, not the subsequent removal of your name from title! – Read More Here >> Fannie Mae Waives Waiting Period After Bankruptcy
Mortgage Discharged Through Bankruptcy
Much of this conversation has taken place in the comments sections of two articles from a few months back – Buy Again After Bankruptcy, Foreclosure and Buy Again One Day Out of Short Sale.
All of the conversations I have had around this subject are very similar in that:
- I discharged my mortgage through bankruptcy
- The home is upside down but I didn’t want to lose it
- Now I want to buy a new home with a more affordable payment
What it boils down to is that when mortgage debt is discharged through BK, it does not mean that you own the home free and clear, and it doesn’t mean that you’re off the hook for the mortgage.
When mortgage debt is discharged, you are protected against any personal liability should the home foreclose through or after the BK – this essentially means the lender cannot come after you for their losses.
Many times the mortgage debt will show up on the credit report as “included in bankruptcy” with is slightly deceiving because it implies that the debt is no longer owed…which is not the case.
The challenge is that if you decide you do not want to be shackled by your upside down mortgage at any time in the future, you are still facing either foreclosure or short sale to rid yourself of the home.
To buy again after bankruptcy you have to wait for 24 months before you can use a FHA loan for the purchase of a new owner occupied home.
Once the bankruptcy is complete, homeowners are still faced with the fact that refinancing into today’s lower rates is not possible due to the fact that the home is upside down.
Renting the home out to buy again after the 24 month bankruptcy wait is also a challenge, as I have detailed in this article: Can I Rent Out My Upside Down Home and Buy Again?
I am keeping a close eye on this, I think that many home owners are in this situation now after filing for bankruptcy a couple of years ago.
I think this is an important conversation to have as there are many families trying to get back on their feet after tough times.his topic?
Do you have any experience or questions around this topic? Please leave comments and questions below if you have a specific situation you would like to discuss.
Working with a Creative Lender
With over 15 years experience being on the cutting edge of creative financing solutions, I can answer, or find the answer to most of your home financing questions.
When I say “creative”, I mean that I know the guidelines, and know how to fight through the hurdles of complicated situations that others may not have the experience, or patience to figure out.
If you are trying to buy after a financial hardship, would like me to review your current your loan, or if you would simply like a second opinion on the loan you’re already approved for, you can either ask questions or leave comments below, shoot me an email directly, or give me a call anytime.
Phone numbers go to my cell phone, and I am available anytime you have a question. Don’t be afraid to leave a message, I promise we will get back to you in a timely manner.