Can You Buy A House After Bankruptcy in Kentucky?

Mortgage Loan Options After Bankruptcy in Kentucky

In some cases, you have exhausted your emergency fund, and have decided there is no option other than to file for bankruptcy to pay off your debt. You may decide to work with a bankruptcy attorney. Plus, you should know all real estate agents and mortgage lenders who have experience working with people with bankruptcy on their credit score.

When you declare bankruptcy, you may find it hard to improve your credit score and financial condition. Even worse, you may think you will never be able to buy a house again, but the reality is different.

Who wants bankruptcy? Of course, no one wants to fall into this drastic situation. But people dealing with financial troubles may think it is the only way to get out of debts and start from the beginning.

However, bankruptcy may minimize financial stress and allow you to focus on making positive financial decisions for your future. So are you ready to move forward and make your dream of owning a home come true? So, adopt the following strategies to achieve the goal.

How Long after a Bankruptcy Can I Qualify for a Kentucky Mortgage?

You can buy a house approximately one or two years after filing for bankruptcy, only if you restore your credit and avoid new debt. Filing a Chapter 7 or Chapter 13 bankruptcy will impact your credit report and put a negative score on your credit. But it does not mean that you cannot buy your own house.

Chapter 7 Bankruptcy

The standard type of bankruptcy is Chapter 7, in which the court wipes down your qualifying debts. In this case, your credit score is affected. If you file Chapter 7 bankruptcy, you have to wait for about four years after the court dismisses your bankruptcy to make you eligible for a conventional loan.

However, government-backed mortgage loans are more complex. You have to wait for about three years after your bankruptcies' dismissal to qualify for a USDA loan. At the same time, you have to wait for about two years in order to qualify for a VA or FHA loan.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy involves the restructuring of your debts. That means you have to make scheduled payments to your creditors. It does not have a substantial effect on your credit score. Moreover, you can keep your assets as well. While regulations for chapter 13 are less severe than Chapter 7, these loans also have a waiting period.

Conventional loans after chapter 13 bankruptcy usually require a waiting period depending on the court’s choice to handle your bankruptcy. Generally, the waiting period is about four years from the date you file bankruptcy and two years from your dismissal date.

While chapter 7 bankruptcy standards are relaxed for government-backed loans, USDA loans have a 1-year waiting period after filing for Chapter 13 bankruptcy. FHA and VA loans need a court to dismiss or discharge approval of your loan before your apply. However, the waiting period remains the same in both cases, whether dismissal or discharge.

How Long after a Kentucky Bankruptcy Can I Qualify for a Mortgage Loan in Kentucky?

There are bankruptcy lenders who can help with your mortgage application even just one day out of chapter 7 or chapter 13 bankruptcy. You will likely need a larger down payment and show that you are taking financial steps to improve your credit.

Below, we will take you through some mortgage after bankruptcy options and then connect you with some of the best bankruptcy lenders. We understand that you area dealing with a lot and having a bankruptcy is not easy. Let us help guide you through this process.

Type of Loan	Chapter 7	Chapter 13
Conventional	4 years	2 years
FHA	2 years	1 year
VA	2 years	1 year
USDA	3 years	1 year

* Mortgage after bankruptcy waiting period chart

Kentucky Mortgage after Bankruptcy Waiting Period

Every type of loan has different waiting period requirements. Here are some of the basics:

• Kentucky VA Loans after bankruptcy– 2 year waiting period 
• Kentucky FHA Loans after bankruptcy – 2 year waiting period
• Kentucky USDA Loans after bankruptcy – 3 year waiting period
• Conventional mortgages after bankruptcy – 4 year waiting period after chapter 7 and 2 years after chapter 13
• Non-QM Subprime Mortgages – Available just one day out of bankruptcy.

Depending upon your scenario, we can find a mortgage for you just ONE DAY after your bankruptcy has been discharged. The rules for applying for a mortgage is the same regardless as to whether you filed a chapter 7 bankruptcy or chapter 13 bankruptcy.

Joel Lobb  Mortgage Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364

Text/call: 502-905-3708

email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

NMLS 57916  | Company NMLS #1364/MB73346135166/MBR1574

How to Figure Rental Income for a Kentucky FHA, VA, USDA and Conventional Mortgage Loans

 Did you know that each agency has different requirements for using rental income from the borrower’s departing residence to qualify?  Please see the guidelines below and let us know if you have any questions.

 

 

Conventional

Rental income can be considered for qualifying purposes using 75% of the current lease agreement.

 

Documentation requirements:

• Fannie Mae – Current signed lease agreement
• Freddie Mac - Current signed lease agreement AND documentation evidencing deposit of first month rental payment and security deposit

 

FHA

FHA

• Must be relocating 100 Miles from departure home.  
• Appraisal evidencing market rent and that borrower has 25% equity.  Does not need to be done by FHA appraiser.
• Executed Lease agreement of at least one year’s duration after loan close.
• Proof of receipt of security deposit or First Month’s Rent.
• Mortgagee must deduct the PITI from the lesser of:
  • the monthly operating income reported on Fannie Mae Form 216/Freddie Mac Form 998; or
  • 75 percent of the lesser of:
    • fair market rent reported by the Appraiser; or
    • the rent reflected in the lease or other rental agreement.

 

VA

If there is no lease the lender may still consider the prospective rental income for offset purposes:

• Obtain a working knowledge of the local rental market from a local real estate agent, and
• the local rental market is very strong
• Rental Income
• When all or a portion of the borrower’s income is derived from rental income, documentation and verification of the income are necessary to determine the likelihood of continuance.
• Verification of Rental Offset of the Property Occupied Prior to the New Home
• Obtain a copy of the rental agreement for the property, if any.
• Analysis using Rental Offset of the Property Occupied Prior to the New Loan
• Use the prospective rental income only to offset the mortgage payment on the rental property, and only if there is not an indication that the property will be difficult to rent. This rental income may not be included in effective income.
• Obtain a working knowledge of the local rental market. If there is not a lease on the property, but the local rental market is very strong, the lender may still consider the prospective rental income for offset purposes. Provide a justification on VA Form 26-6393,Loan Analysis.
• Reserves are not needed to offset the mortgage payment on the property the Veteran occupies prior to the new loan.
• Continued on next page
• VA Lenders Handbook M26-7
• Chapter 4: Credit Underwriting
• 4-17
• Topic 2: Income – Required Documentation and Analysis, continued
• n.Rental Income, continued
• Example [Rental Offset of the Property Occupied Prior to the New Loan]: The Veteran’s current home has a VA mortgage with a monthly PITI payment of $1,000. Bonus entitlement is being used to purchase a new primary residence and the Veteran will rent the previous home for $1,200 monthly upon closing of the new home. The payment of $1,200 can be used to offset the existing mortgage payment, if all the above conditions are met. The additional rent received in excess of the mortgage payment cannot be used as effective income.
• Verification of Rental Property Income
• Obtain the following:
• ·
• documentation of cash reserves totaling at least 3 months mortgage payments (PITI), and
• ·
• individual income tax returns, signed and dated or lender obtained tax transcripts, plus all applicable schedules for the previous 2 years, which show rental income generated by the property.
• If the borrower has multiple properties, the borrower must have 3 months PITI documented for each property to consider the rental income.
• If there is not a lien on the property, 3 months reserves to cover expenses such as taxes, hazard insurance, flood insurance, homeowner’s association fees, and any other recurring fees should be documented for the property(ies).
• Equity in the property cannot be used as reserves.
• Cash proceeds from a VA refinance cannot be counted as the required PITI on a rental property. The reserve funds must be in the borrower’s account before the new VA loan closes.
• Gift funds cannot be used to meet reserve requirements.
• Analysis of Rental Property Income
• Each property(ies) must have a 2-year rental history itemized on the borrower’s tax return.
• Property depreciation claimed as a deduction on the tax returns may be included in effective income.
• If after adding depreciation to the negative rental income, the borrower still has rental loss, the negative income should be deducted from the overall income as it reduces the borrower’s income.
• If rental income will not, or cannot be used, then the full mortgage payment should be considered and reserves do not need to be considered.
• Continued on next page
• VA Lenders Handbook M26-7
• Chapter 4: Credit Underwriting
• 4-18
• Topic 2: Income – Required Documentation and Analysis, continued
• n.Rental Income, continued
• Verification of Multi-Unit Property Securing the VA loan
• The Veteran/borrower must occupy one unit as his/her residence.
• For purposes of determining the VA guaranty, lenders are instructed to reference only the One-Unit Limit column in the FHFA Table “Fannie Mae and Freddie Mac Maximum Loan Limits for Mortgages, located at https://www.fhfa.gov/DataTools/Downloads.
• Verify cash reserves totaling at least 6 months mortgage payments (PITI), and documentation of the borrower’s prior experience managing rental units and/or use of a property management company to oversee the property.
• Analysis of Multi-Unit Property Securing the VA loan (Veteran will occupy one unit as his/her residence)
• Include the prospective rental income in effective income only if:
• ·
• the borrower has a reasonable likelihood of success as a landlord, and
• ·
• cash reserves totaling at least 6 months mortgage payments (PITI).
• If each unit is separate and not under one mortgage, 6 months PITI must be verified for each separate unit.
• Equity in the property cannot be used as reserves to meet PITI requirements. This must be the borrower’s own funds, not a gift.
• Cash proceeds from a VA regular “Cash-Out” refinance cannot be counted as the required PITI on a rental property. The reserve funds must be in the borrower’s account before the new VA loan closes.
• The amount of rental income to include in effective income is based on 75 percent of the amount indicated on the lease or rental agreement unless a greater percentage can be documented (existing property).
• The amount of rental income to include in effective income is based on 75 percent of the amount indicated on the appraiser’s opinion of the property’s fair monthly rental (proposed construction).
• Continued on next page
• VA Lenders Handbook M26-7
• Chapter 4: Credit Underwriting
• 4-19
• Topic 2: Income – Required Documentation and Analysis, continued
• o.Temporary Boarder Rental Income Single Family Residence
• The verification of temporary boarder rental income requires the following:
• ·
• individual income tax returns, signed and dated, plus all applicable schedules for the previous 2 years, which show boarder income generated by the property, and
• ·
• the rental cannot impair the residential character of the property and cannot exceed 25 percent of the total floor area.
• Analysis of Temporary Boarder Rental Income
• Include rental income in effective income only if the borrower has a reasonable likelihood of continued success due to the strength of the local market. Provide a justification onVA Form 26-6393, Loan Analysis.
• PITI reserves are not necessary to consider the income, and all the income may be used in the analysis.

Utilizing rental income from the previous home to qualify for the new mortgage in Kentucky FHA, VA, Fannie Mae

 Kentucky FHA, VA, and Fannie Mae Conventional Mortgage rules for rental income

Today's borrowers often wish to retain their existing homes when purchasing a new primary residence. Many questions arise about utilizing rental income from the previous home to qualify for the new mortgage. To clarify the guidelines, we've compiled the pertinent information below.

FHA

• Must be relocating 100 Miles from departure home.  
• Appraisal evidencing market rent and that borrower has 25% equity.  Does not need to be done by FHA appraiser.
• Executed Lease agreement of at least one year’s duration after loan close.
• Proof of receipt of security deposit or First Month’s Rent.
• Mortgagee must deduct the PITI from the lesser of:
  • the monthly operating income reported on Fannie Mae Form 216/Freddie Mac Form 998; or
  • 75 percent of the lesser of:
    • fair market rent reported by the Appraiser; or
    • the rent reflected in the lease or other rental agreement.

Conventional

• Executed long term Lease which must start prior to first Payment due date.
• Form 72/1007 supporting lease or 2 months receipt of rental income (or security deposit + 1st month)
• 75 % of lesser of lease or market rent will be used to offset PITIA of departure home.  Income above PITIA can only be used if borrower has documented 1 year history of Investment Property Management.  If no prior history, it is limited to zero positive cashflow.

• The following sources outline the general rental income eligibility requirements for conventional conforming mortgages. 

  • Fannie Mae rental income
  • Freddie Mac rental income
  • Calculating rental income
  • Rental income calculation worksheets

VA

• Must provide either a fully executed lease agreement or CMA (Comparative Market Analysis) completed by a real estate agent.
• Must use 75% of the lease agreement amount or 75% reported on the CMA.
• Can only be used to offset PITIA

Joel Lobb  Mortgage Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364

Text/call: 502-905-3708

email: kentuckyloan@gmail.com

http://www.mylouisvillekentuckymortgage.com/

NMLS 57916  | Company NMLS #1364/MB73346135166/MBR1574