Many of the U.S. Department of Housing and Urban Development guidelines for purchasing a FHA-insured home loan during a Chapter 13 bankruptcy also apply to Chapter 13 refinancing. Refinancing guidelines, however, are a tad more relaxed. This may eliminate your need for a cosigner. Nevertheless, the need for a cosigner actually depends on your history of repayment obligations while in Chapter 13, and the FHA loan underwriting requirements of your lender.
Reasons for Needing a Cosigner
No credit history, poor credit history and unverifiable income are the main reasons home buyers might need a cosigner. Young workers, new to the labor force, obviously don’t have a credit history. Buyers with poor credit histories, including prior foreclosures and bankruptcies, may also need cosigners to give lenders extra assurance that their money is secure. HUD does not have guidelines regarding cosigners when purchasing a FHA home. FHA-approved lenders usually make these decisions at their discretion based on their loan underwriting requirements. The same lender requirements also apply to FHA refinance loans. HUD Chapter 13 purchasing and refinancing requirements are minimum requirements; lender requirements for underwriting FHA-insured loans are frequently more stringent than HUD requirements.
Buying a Home with FHA While in Chapter 13
HUD guidelines for buying a home through FHA are pretty much non-negotiable. If you fail to meet any of the guidelines, you may be required to get a cosigner or submit a letter of extenuating circumstances—a "cry letter"—explaining the particulars of your situation. These are the HUD guidelines for buying a home while in Chapter 13: You must be in Chapter 13 bankruptcy for at least one year, all bankruptcy payments must have been on time, you can't have any late payments on any debt since filing bankruptcy, you need a minimum credit score of 530, your current mortgage or rent payment must be verified for the last 12 months, and you must have permission from the bankruptcy trustee.
Refinancing Your Home with FHA While in Chapter 13
With the exception of your minimum credit score, all of the purchasing guidelines also apply to refinancing. Unlike a home purchase, however, HUD doe not have a minimum credit score to refinance with FHA. This is a significant difference, because it might eliminate the need for a cosigner. Always be prepared to write a "cry" letter, however, whenever credit issues challenge your ability to get a loan.
FHA Streamline Refinance
HUD Chapter 13 refinance guidelines, as described earlier, generally apply to FHA credit qualifying refinance products, which may or may not require a cosigner, depending on the lender. The FHA Streamline Refinance product, on the other hand, is so lenient in terms of borrower verifications that it often precludes the need for a cosigner. The key features of the FHA Streamline Refinance program, according to the FHA rules, are as follows: no income verification, no employment verification, and no credit checks or credit-score verification. To qualify for this program, you must have an existing FHA-insured loan. This is a no-cash-out refinance program. If you do not need to cash out, and want to avoid getting a cosigner if possible, the FHA Streamline Refinance program may fit your needs. Learn more about this program at the HUD website.
- CREFCO: Bankruptcy Options with FHA
- FHA.com: FHA Refinance Questions You Should Be Ready To Answer
- FHA.com: FHA Requirements: Credit Guidelines
- HUDDOC HUD 4155.1: Section C. Streamline Refinances [Refer to Topics 1 and 2]
- FreeRateUpdate.com: Extraordinary Benefits Offered With FHA Streamline Refinance
- The Mortgage Reports: The FHA Streamline Refinance: 3 Ways To Reach More U.S. Households
George Boykin started writing in 2009 after retiring from a career in marketing management spanning 35 years, including several years as CMO for two consumer products national advertisers and as VP for an AAAA consumer products advertising agency. Boykin mainly writes about advertising and marketing for SMBs.