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Obtaining a Mortgage 1 year after bankruptcy discharge...advice please :)

Hi,
My husband and I filed bankruptcy (Ch 7) and it was discharged last October.  Our credit since then is good.  My credit score has actually gone up by 100 pts (still Fair at 638) and I'm not sure about his (didn't pull his).  The only negatives we may have on our credit now are two hospital bills (hit with two ER visits one month after our discharge and we didn't have good insurance-deductibles too high at the time) that we are trying to pay.  Other than that, I was able to obtain a small credit card to start re-building (limit of only $750). 

What I'm wondering is, what kind of mortgage is it possible to get in our situation with our credit?  We rent right now...at abotu $1000 a month (and I hear the rent is going up).  I found a halfplex for only $114,000 in a great neighborhood (3 bed/2 bath) that I could see us living in for at least 5 years (and it's right across the street from my daughters school and has a big yard).  What type of down payment is required these days?  I believe if we were able to obtain a loan with even a lower down payment (say 5% but I hear it's hard to find a lender that will take less than 10%) and pay P&I, for a 30 yr fixed at 7%, the mortgage amount would be around $850/month...even lower than we are paying in rent. 

What I'm wondering is...is it possible with 5% down payment....and with our credit....and if so, where do I go to try to obtain a pre-approval? 

Researching...thank you!
Angel in Carmichael, CA
  • October 05 2011 - Carmichael
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Answers (10)

I have more of a question than a response.  I reside in Arizona and apparently there is a state law related to excess proceeds and its use.  I have a recent bankruptcy (chp 7), and a foreclosure.  I also have excess proceeds and have been told by a bk attorney that the proceeds have to be put back into another property within 18 months from the date of the foreclosure.  I have 10 months go buy another home or lose the proceeds. I recently ran my credit and was told its in the mid 500's. How do I quickly build my credit score so that I am able to take advantage of my proceeds?  How do I locate a lender that is willing to work with me?
 
  • April 14
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Profile picture for GlenPizzolorusso
FHA allows for a purchase after 12 months if the borrower can show that the bankruptcy was caused by extenuating circumstances that are not likely to recur. They also need to demonstrate that they have their finances in order, so most likely will need some form of re established credit, even thought FHA states that "choosing not to obtain new credit" constitutes financial responsibility.
  • April 16 2014
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Randall,

That is somewhat odd to post in this thread since AngelHealth never lost her home. The question is about a Chapter 7, not a foreclosure or short sale. 
  • August 29 2013
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  • August 28 2013
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Profile picture for AngelHeath
Oh my goodness...I'm glad I found this forum...all the advice has been amazing (I don't know how to pick the best answer because they are all good!).  This is exactly what I was looking for....advice on how we stand right now and how we can improve!  :) 

The Medical debt is about $4400 ($3200 for my daughter's ER visit-she ate a mushroom from my sisters backyard that we couldn't identify...she was out of the Er in 6 hours with only a coal drink and the bill was outrageous!  And $1200 for my ER visit - food poisoning from crab after I attended a benefit crab feed-it was horrible). Her bill was actually $6000 but we paid it down to the $3200 since last October...now we are working on that.  And we got better insurance now so if anything else happens girls are covered with no deductibles-just a co-pay and I have a low deductible plan. 

We will continue to pay that down and get back on track again!  To answer the question about the foreclosure-we did have a foreclosure that closed back in 2006 or early 2007...that was not in our bankruptcy as it had already been done.  What was in our bankruptcy was just all of our credit card debt from that house (when we were in our home, we were trying to remodel and update things and then life got the better of us).  I regret not filing bankruptcy back in 2006 when we left our home (before any assistance was available to homeowners going through rough times) and just starting fresh then.  Hindsight is 20/20 right?  But we are following a budget now and no new credit except my little credit card.  I am using that only for work related expenses that I get re-imbursed for (I'm a Commercial Loan Audit assistant working for a Bank auditing firm here in California)...so i pay that off just about every month.

Thank you again everyone for your advice! 
Angel :)
  • October 06 2011
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Angel,

It looks like you'll have to wait about a year before you can qualify for anything. FHA allows people to buy two years from Chapter 7 discharge.

One thing you'll want to keep in mind is guidelines state that a buyer should have reestablished some new credit (as you are doing with your new credit card) and not have any derogatory marks on your credit report since the bankruptcy. But since your two collections are medical-related it may still be OK. I would do all I can to take care of them ASAP if you seriously want to buy as soon as possible.

As far as the down payment goes, 5% is more than enough and is actually the sweet spot for FHA loans (which only require 3.5% down).

If you're serious about buying once those two years are up I'd start talking to experienced, professional, local lenders about getting "mortgage ready" now so all is in order once those two years have passed.

Hope this information helps a little...

Sincerely,
Greg
Innerwork Mortgage
Roseville, CA

  • October 06 2011
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Angel,
currently FHA requires 2 years from the discharge date of a ch 7. To confirm, did your ch 7 inculde a forclosure; a forclosure will increase the time frame too 3 years from the title transfer date of the property. It is very important to start rebuilding your credit and credit score. a good rule of thumb is 3 tradelines (aka credit lines) opened for minmium 12-24 months. I have many clients in your present stiuation and many that have taken the right step to achieved home ownership. it is very important to have no derogitory credit after a bankrupty. even thou underwriters are more forgiving of medical debts, my best advice would be meet with local lender, follow thier advice, and refferals.

Justin
Vitek Mortgage Group
Cameron Park, CA
  • October 06 2011
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Hi Angel,
You would need to wait another year and continue working on your (and your husband) credit score. And yes if all goes well, you may be able to qualify for an FHA loan with as little as 3.5% down.

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  • October 05 2011
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Profile picture for wetdawgs
Put together a time line for achieving your dream of home ownership. It isn't going to happen today or tomorrow.  It may be several years.    Review your financials details with a lender in person (to a level of detail you wouldn't want to do in a public forum).  The medical bills a month after discharge are a biggie.  If you have a strategy for improving credit, saving up a substantial down payment and knowing what is realistic then you can work to that plan.   Now isn't a good time to be looking at houses.

  • October 05 2011
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unlikely to be able to do anyhting for another year or two ...maybe longer
  • October 05 2011
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