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My wife and I were discharged chapter 7 22 months ago, can we get a pre approval

We have rebuilt credit to 700 mid scores and a 3.5% down payment saved for our target Price range. We want to buy in or near streetsboro Ohio.
  • March 01 2014 - Streetsboro
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Answers (4)

Good Afternoon,

The short answer is yes- you should be able to obtain a pre-approval from a lender, but you probably won't be able to close on the loan until a minimum of 2 years has elapsed since the discharge of the chapter 7. The good news is that you are very close, so it might be time to get pre-qualified and start looking for a new home!
  • March 04 2014
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It is possible as long as you have rebuilt your credit (which it seems you have) and sit through the required waiting then you should be able to get a loan. The waiting period depends on what type of bankruptcy you had? To obtain an FHA loan or a VA loan after a Chapter 7 bankruptcy, you must wait two years from the date your Chapter 7 is discharged. Although there is an exception for FHA loans. You can possibly obtain an FHA loan after one year if you had an economic event (such as unemployment) that resulted in a loss of income causing you to become bankrupt. Conventional loans have the longest waiting periods. If you want a conventional loan, you must wait four years after receiving a Chapter 7 discharge.If you would really like a mortgage there are also hard money loan options that you can consider. Either way, the best thing for you to do is to speak with a knowledgeable lender to see if you can get started on financing a new home. If you need additional assistance, feel free to reach out. Good luck!

  • March 04 2014
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Ben has quoted most of the FHA guidelines. With different lenders you sometimes hear different things due to what we call "overlays" but no matter who you call you should get the very answer Ben has provided. It's sometimes nice to add a confirmation so you have at least two answers/opinions. If I can answer any add'l questions, I'd be happy to help. Best wishes otherwise, Kimberly Lawson, Licensed Mortgage Loan Originator - Ohio only. Contact and licensing information can be found on my profile. 
  • March 03 2014
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Profile picture for Ben Link
Hi Matthew,

You should be able to get a pre-approval, but it would be contingent upon your chapter 7 being at least 2 years old, meaning you won't be able to close for 2 months.

There are 2 exceptions that could help you close sooner.

FHA allows for just 1 year after a bankruptcy, if you can show the reason for the bankruptcy was out of your control. I know a divorce isn't one of the acceptable reasons of "out of my control," having tried that one several times for clients. Your loan officer should be able to help you figure out if your circumstances might qualify you for the 1 year exception.

FHA also has a special program known as "Back to Work" which also allows for just a 1 year waiting period. The government realized that the recession hit many Americans very hard, and lots of folks ended up in bankruptcy or even foreclosure. If you can show your household income for the 6 months leading into the bankruptcy or foreclosure was at least 20% lower than the previous 6 months, you could qualify for the special Back to Work exception. Assuming you qualify, you will need to take a First Time Home Buyer class (contact your loan officer for a list of qualified classes in your area). After completing the class, you have to wait another month before applying for a loan.

Given that the regular FHA rules allow for a 2 year waiting period, I don't know that I would lead you down the "Back to Work" path. The regular rules are easier and the timeframe for you is just about the same.

Good luck!
Ben
  • March 01 2014
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