Chapter 13 and FHA Loan Suggestions
Chapter 13 and FHA Loan Suggestions
Bankruptcy can be a troubling time for anyone. You aren’t given much room to decide how much to pay the trustee and many are just struggling to get by. A home loan seems almost out of the question. How can you get a loan when you’ve recovering from a Chapter 13 Bankruptcy? One option that many people do not know about is a FHA Loan. Potential borrowers are not automatically turned away from a FHA loan just because of a bankruptcy.
Some important facts to remember about bankruptcy and FHA loans:
- Pay all of your bills on time. It is important to be able to show that you are repairing your credit. DO NOT BE LATE. By consistently making your payments on time, especially on your home or payments to the trustee, you can turn your credit around as well as possibly open up opportunities to buy out of your bankruptcy, which will save you money.
- Write down why you had to file for Chapter 13. What happened? Did you lose your job, go into the hospital or was it some other sort of emergency? Write it down and be specific, give details. Show how you have turned things around for yourself. As discussed later, you’ll need to receive permission to enter into a new mortgage transaction and having this information will be helpful for you and your lawyers.
- Keep everything. Anything from lawyers, the courts, or the trustees should be carefully stored and filed, if possible. Almost all of the information you receive will be needed at some point down the road, typically when trying to repair your credit report. SAVE EVERYTHING.
- After making your payments, on time, for a year you should be able to buyout your bankruptcy. The HUD website can provide more details, but if the lender documents that one year has elapsed and the payment performance has been satisfactory (read: paid in full and on time) then a borrower should be able to obtain a FHA loan. As I mentioned earlier, the borrower will have to receive permission from the court in order to go into a new mortgage transaction, but if you did number 2, you should be fine.
IRS Revokes Non-Profit Status from DPA’s
The IRS ruled in April of 2007 that certain down payment assistance programs do not qualify as non-profit organizations, a list of which has been posted online. This list is likely to get very long as the IRS has been investigating over 150 different organizations providing similar services. Probably the most important part of their ruling is that the non-profit status will be revoked back to January 1, 2003.
How Do DPA’s work?
Down Payment Assistance programs help low to moderate income, as well as first-time home buyers, to afford the cost of the down payment on a new home. These programs typically work with borrowers seeking FHA loans. With FHA loans there is a required 3% down payment, but for those with poor credit or no savings even this 3% is difficult to pay. The DPA’s help these borrowers by distributing “gift” funds – to pay for closing costs and the down payment – for those who qualify. The controversy surrounding these organizations is that they typically look to the seller to make a donation slightly larger than the borrowers “gift.” This results in inflated home prices for sellers trying to recoup the loss of their donations.
How Does the Ruling Affect You?
It is difficult to say exactly how this will play out. If the IRS rules that gifts made to and from DPA’s are not gifts, starting in January 2003, a large number of sellers who have used these programs could possibly owe back taxes. This could also mean that none of the loans made where these organization presented “gift” funds will continue to be guaranteed by HUD. Considering that more than 1/3 of all down payments for FHA loans last year were paid for by a DPA, this ruling will certainly be affecting a large number of people in some way or another.
Home Ownership Accelerator Program
Home owners interested in paying off their mortgages as seamlessly and quickly as possible might want to consider one of the newest trends in the industry — a mortgage that basically doubles as a checking account.
A California-based mortgage firm has pioneered a program called the Home Ownership Accelerator. Financial experts at CMB Financial Services created a method of making principal payments that combines a traditional mortgage with the basic tenets of a checking account at your local bank.
Here’s a snapshot of how it works: Instead of writing a check for the mortgage each month, homeowners deposit their entire paychecks, as well as all other sources of income they receive, into their mortgage, completely bypassing a checking account. Those deposits eat away at the remaining principal on the mortgage, while interest is calculated at the end of each month based on the amount remaining on the loan.
Meanwhile, homeowners can access that mortgage throughout the month like any checking account, either by writing checks or using an ATM card. Withdrawals, of course, pull money back out of the principal payments made each week or month.
The loan pays off faster than a traditional mortgage because with a lower average balance, there is less interest charged and therefore more of the person’s income can stay in the mortgage in the form of principal, ” Doug Nesbit, a vice president with CMG, told The San Francisco Chronicle recently.
The company says the loan is “is ideally suited for homeowners with a stable salary, good credit and financial discipline.” In other words, it’s geared more toward people who can afford to sink their salaries into this type of fund. Those living more paycheck to paycheck should probably look elsewhere.
Mortgage Loan Place is here to help you make sense of the mortgage world and find options that fit your needs and lifestyle.
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