If you are dreaming of obtaining a mortgage while in a Chapter 13 plan it is important to be prepared for the hurdles that may arise as you try to purchase or refinance a home. While it is a bit easier to get a mortgage after bankruptcy, it is possible to get a mortgage while you are working through the plan. There are a few additional requirements involved while you are under the bankruptcy plan which while challenging, can be accomplished.
Credit Reporting Considerations
The basic requirements for credit, income and assets do not differ between being in the Chapter 13 or discharged, but the biggest obstacle tends to be credit scores and derogatory accounts. While under the bankruptcy your creditors should not be reporting anything to the credit bureaus. This is good if you had late payments on debt filed in the plan as it stops the monthly derogatory marks for late payments. The downside is you likely won’t get credit for accounts paid on time during the plan. Rebuilding credit scores is hard without having positive items reporting to the bureaus. You will also need to have time pass from late payments reporting on your credit report. While you can obtain a mortgage as soon as 12 months into the bankruptcy plan, you may have to wait an additional 12 months if you had significant derogatory items or need to give your scores time to rebound.
Once you are 12 months into the Chapter 13 with consecutive on time payments made, you will also be required to get the trustee’s approval to obtain a mortgage while in the plan. This can be quite challenging as each trustee is different on what they will allow regarding payments, terms, or even obtaining a mortgage at all. Your attorney is the best resource as far as what the trustee will require, and any parameters you will need meet for approval. You can anticipate waiting days to weeks for a response from the trustee. It may also add additional fees from the attorney for their time or court filings.
Debt-To-Income Consideration
Another hurdle can be that your monthly payment to the Chapter 13 plan will be counted in your debt-to-income ratios. This could impact how much you would qualify for when purchasing a new home or refinancing your current property. Your debt to income is reviewed as your income versus your housing payment obligation, and then your income versus your housing obligation plus other monthly obligations including the bankruptcy payment. You may find your bankruptcy payment obligation limits your buying power or refinance options while you are still in the plan. Typically, there is more flexibility getting a mortgage after a bankruptcy since once you receive your discharge letter these extra requirements would not apply. However, if you need to obtain a mortgage while in Chapter 13 there is certainly a path towards accomplishing your goals and putting you in a better financial position.