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Ask Me Anything About Buying a Home After Bankruptcy

Ask Me Anything About Buying After Bankruptcy

Buying after bankruptcy is a topic that we have become experts at.

We get readers from all over the Country that are either doing research in an attempt to get started, or doing research in an attempt to figure out what went wrong with their current lender.

There is an interesting thing that happens when you call a lender and apply for a home loan.  They seem to always say YES at first, and many times will come back later and say NO.

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Why does that happen?  Well, there are a lot of reasons.  The most common reason being that many loan officers are sales people.  Sales people like to think of people as “numbers”….as in “I’ve gotta hit my numbers”.

Well, nobody likes to be a number, and when you close your eyes and swing at every pitch that comes at you, you’re going to miss a lot.  And many sales people miss a lot!

The reason we started this site was to give folks a voice, and an opportunity to get expert advice with no motivation for answering questions other than to help.  I don’t know you, I don’t know where you live, I just answer your questions as they roll in.

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Why would we do this?  Because it’s the right thing to do!  Listen, we get plenty of business from families trying to buy or refinance in my home State of California, so it’s not like I’m doing this and getting nothing in return.

I also have a large network of experienced lender friends that I know and trust that I introduce people to all the time.  The average years of experience among this group has got to be close to 20 years.  Some more, some less.  All trustworthy, and willing to help.

I wanted to share examples of some of the most common types of questions I get every day.  If you find yourself in a similar situation, you can always ask your question here if I haven’t already answered it for you.

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Lenders That Have Their Own Guidelines

Here is a typical example of a lender that chooses to be more conservative, and not follow certain guidelines regarding bankruptcy and foreclosure.

Hi Scott,

Reading through your blog and see questions/answers similar to mine… but not exactly, so I’m hoping you can guide me?

We had a Chapter 7 discharge on 9/9/09 followed by a vacant property foreclosure in WI (sheriff sale date of 7/7/10). We bought a new property in October 2013 and have a FHA loan that we’re paying PMI on.

I called Wells Fargo to ask about a refinance and they’re saying we can’t qualify for Conventional financing until after 7/7/10. Is that accurate, or is that only because it’s through Wells Fargo?

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Any Advice?

Carrie

So this is more common than you would think.  Wells Fargo has overlays that are more strict than the Fannie Mae Guidelines.  My answer to Carrie was that this is NOT accurate.

Because the mortgage was included in a bankruptcy, using conventional financing, you can go by the bankruptcy discharge date and can ignore the subsequent foreclosure.

Carrie is also eligible for FHA financing, 3 years from the foreclosure.

Lenders That Say YES, Then Later Say NO

I get way more of these kinds of stories than I would like to admit.  The worst of these are people that I know I can help, but they want to “stick it out” and see if their lender can figure it out.

Find the Right Lender. Find the Right Loan. Get Help Now!

Whether it’s an inexperienced loan officer, or a misinformed underwriter, or a company policy to take a more conservative route than the underwriting guidelines allow for, the end result is the same.

Hello Scott,

I had emailed you a few months ago about a situation I have.

I had a vacation home that I had included in my bankruptcy.  The bankruptcy was discharged sometime in January or February of 2013.  My bankruptcy lawyer told me NOT to reaffirm with Wells Fargo (the lender) so I didn’t.

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However, I had continued to make the monthly payment because I thought I had to.  When I called Wells Fargo in May 2015 telling them I couldn’t afford to continue the payments, they told me it wasn’t a problem because it had been included in the bankruptcy and I could simply “walk away”.

They didn’t end up foreclosing on the house and getting sold until October 2016.

You had told me that because it had been in the bankruptcy and I never reaffirmed, and it had been sold last year (no longer in my name), that there wasn’t any reason why I couldn’t get a conventional loan to buy another primary residence.  You said you knew someone I could go to for the loan if the lender I was working with turned me down.

Well, they told me it wasn’t going to be a problem, so I told you I wouldn’t need the name of the lender.

However, I just received a phone call about an hour ago from the lender, and he says the underwriter said I can’t get the loan because the house didn’t foreclose and get sold until last year.  He states it doesn’t matter that it was included in the bankruptcy.

That the problem is because I continued to pay on it.  I told him I gave him all that information up front and asked him to check with his underwriter before I even started looking for a house.  He said he is going to try and see what he can do, but he doesn’t think he will be able to do anything.

The devastating part of this whole thing is, I put a bid on a house and was supposed to close on March 29th, and now I’m being told I can’t get the loan.

If there is anything at all that you can do to help, I would be extremely grateful, because I don’t want to lose this house.

Laura

I know, tragic, right?  Well, you don’t have to worry about Laura.  I introduced her to the same person I sent her too the first time she contacted me, and Laura is going to be able to close on-time and get her home.

Need an Expert Opinion?

So there you have it.  There’s two of the hundreds of questions we get on a monthly basis.  If you find this article, or this site, and you have a question, please feel free to ask.

I have nothing to gain by answering your question, so you’re only going to get my experience, or an introduction to an experienced friend of mine, not a sales pitch.

About Your Expert

Scott Schang

As a 19 year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues, and making sense of complicated real estate and mortgage topics on this website since 2007

Leave a Question or Comment About this Topic

  • Tasheen says:

    Hi Scott, I had stumble across your web page and started to do some research on my situation. So I filed a chapter7 three years ago. And I contacted the bank and they stated that I was removed from the title in 10/15 not sure if that’s true. Can you tell me if theirs another way to find out when I was removed from the title?I have rebuilt my credit and want to get on with my life. Can I qualify for a mortgage. Also if you have a mortgage guy around Northern NJ area can you please refer me to him/ her?

    • Scott Schang says:

      Hi Tasheen,

      The date of the foreclosure is a public record. I will send you an email with separately to get the address to the home, and I can see if I can pull up the records to verify the date your name was removed from title.

      The waiting period before you would be eligible to buy again depends on the type of financing you are applying for. Conventional financing will allow you to buy with as little as 3% or 5% downpayment, 4 years from the discharge of the bankruptcy, and ignore the foreclosure date.

      FHA financing is going to require a 3 year waiting period from the foreclosure date.

      There are 2 other options that have more specific qualifying guidelines. If you are buying in an area that is eligible for USDA financing, you can buy 3 years from the discharge of the bankruptcy, and ignore the foreclosure date.

      If you are a Veteran, and eligible for VA housing benefits, you would be eligible in 2 years from the foreclosure date.

      It sounds like the FHA and Conventional options will be available in 2018. If you are in a USDA eligible area or a Veteran, you may be eligible now.

      I do have a great lender friend in NJ that can help you prepare to buy as soon as you’re eligible. I will introduce you when I send the email.

      Hope this helps?

  • Paula A Bishop says:

    Hi Scott,

    I hope you can answer a question for me.

    Had a financial hardship and ended up having to file chapter 7. It happened because my husband died, my house was underwater and the payments were too high for me. The bankruptcy was discharged in December 2015. I tried loan modification, short sale and deed in lieu and was never able to do anything with the house because of an 80/20 loan. the 2nd mortgage company would not work with me. I left the property 4 years ago and am trying to move on with my life. I just saw a house I love. I was turned down by fha as it’s only been a year or so since the bankruptcy. the loan officer said you need to wait another year and if the house goes into foreclosure (as it is still sitting there vacant) then you’ll have to wait as the timeline changes to the foreclosure date and not the bankruptcy date. (I included the mortgages in the bankruptcy)

    I can’t belieive there is nothing they can do for me. I’m panicking thinking that house will foreclose now and I’ll have to wait 3 or 4 more years to get a mortgage. I’m wondering if there are any other programs I could be eligible for and if not now, perhaps in a year or so. I’m just devastated. I was recently remarried and want to get a new home.. we are only looking for a modest home to downsize into. I’ve been renting now for years… the housing bust of 2007 got me. I purchased the home that year, by the end of the year my property was worth over 100k less than when I bought it. yikes….

    any suggestions/advice etc?

    most gratefully,

    Paula

    • Scott Schang says:

      Hi Paula,

      I am so sorry to hear about your hardships, I can only imagine how difficult that was for you. Thank you for sharing in such detail, I can definitely help show you the light at the end of this tunnel.

      Your lender was correct that FHA is going to start a new waiting period once title to the home is removed out of your name. If the property is sitting there vacant, and it doesn’t sound like you’ve continued to make payments, so a foreclosure is most likely immanent. Hopefully the foreclosure happens sooner than later.

      There are a couple of options for you here. First question is, was it a Chapter 7 or 13 BK? I’ll give you an answer based on either, but it does make a difference.

      Using conventional financing, the waiting period clock begins from the discharge of the bankruptcy, and allows you to ignore the foreclosure date, unlike FHA. If the BK was a Chapter 7, the wait is 4 years from the discharge date. If it was a Chapter 13, the wait is 2 years from the discharge date.

      Using conventional financing, I believe you have a very strong case for qualifying for an extenuating circumstances exception due to the death of a primary wage earner. This would shorten the waiting period from 4 years after a BK7 to 2 years, and 2 years after a BK13 to 1 year.

      The biggest hurdle you have at this point, is getting title out of your name. I’m not sure when the last time was that you attempted a short sale or deed in lieu, but I would revisit those options. The other option is simply wait for the bank to foreclose. The good news here is that as soon as the bank does foreclose, you should be eligible for conventional financing.

      While I am unable to do this, I do have a couple of lender friends that have had success getting a loan approval while still being on title to a home in very similar situations to yours. I am not sure how they’re able to get this done, other than maybe their investors service the loans and do not sell them to Fannie Mae.

      Shoot me an email to scott@findmywayhome.com, and I can introduce you to someone with experience around these guidelines that can help you either now, or in the future.

      Hope this helps?

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