Can I Get a Mortgage During Chapter 13 Bankruptcy?



Can I Get a Mortgage During Chapter 13 Bankruptcy?

Most of the people who file Chapter 13 bankruptcy are trying to save a home they already have. But in some cases, people who are working their way through a Chapter 13 plan start considering a home purchase.

And if you’re one of them, take heart: it is 100% possible to get a mortgage while you work your way through your plan. You just have to find a bankruptcy-friendly lender and meet their requirements. This won’t be easy, but other borrowers have made it happen, and if you’re careful and strategic, you can too.

There are some general requirements almost all these lenders have.

1) Work your plan for at least one year.

Make all payments on time. The lender will be looking for signs that your fresh start is helping to put you on firmer financial footing.

Lenders want you to be successful with your new mortgage. Keeping up with your plan payments is a good sign you can be.

2) Save up a down payment.

Lenders will consider you to be the highest of high-risk borrowers. This means zero-down government-backed loans won’t be open to you.

Plan on saving at least 20% down. You should also be aware that the source of the funds matters. Many mortgage lenders won’t accept down payments that come from friend and family member gifts, for example.

3) Put together a robust emergency fund.

If you’ve been a renter all your life you might not realize just how expensive home ownership can become. Even if you’re extremely handy, there are things you’re just not going to be able to fix on your own, or cheaply.

Your utility bills are likely to increase. In addition, you’ll have property taxes to deal with.

With a good attorney by your side, you should be able to work a modest emergency fund savings plan into your bankruptcy budget. But keep in mind the court won’t let you keep much.

Still, if you can show your lender you’ve got a cushion then they’re typically going to be more comfortable working with you.

4) Get permission from your trustee.

When you’re working a Chapter 13 bankruptcy your financial decisions aren’t entirely your own to make. You’ll have to make your case to your trustee, who will approve or deny your decision.

You’ll need to demonstrate that taking out this mortgage won’t cause you to default on your payment plan, since the trustee’s primary concern is ensuring that the creditors don’t suffer harm or loss as a result of this decision.

5) Double check your decision.

For some borrowers, it’s truly better to wait. Some may even want to convert to a Chapter 7, clear the remaining debt (if they meet the requirements of the federal means test) and then save up while rebuilding credit over the next two years.

It’s not easy to meet the requirements while working a plan. But much depends on your situation, your local housing market, and what you’re trying to accomplish. In some areas of the country, homeownership is significantly cheaper than renting, for example.

If you’re not sure what to do, consult your bankruptcy attorney. We can help you strategize and gain trustee approval if you decide to move forward.

See also:

What is the Process in a Chapter 13 Bankruptcy Case?

Can I Convert My Bankruptcy to a Different Chapter?

What is the Bankruptcy Means Test?

Why You Must Understand the Difference Between Chapter 7 and Chapter 13.

Chapter 13 Bankruptcy Offers Tax Deductions for Filers in Pennsylvania


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