Filing for bankruptcy used to seem like a death sentence to your finances. People would be unable to move forward with their financial life for at least 7 years, unless they had the cash to pay for things. This made home ownership seem impossible. Today, however, even if you filed for bankruptcy you can still get a mortgage and even get one that helps you fix up your home or purchase a fixer upper with funds to make it look nice. The streamline 203K program allows you to wait just 2 years after your bankruptcy is discharged to get the loan and make changes to your home.
What is the Streamline 203K Loan?
The streamline 203K loan is one of the most affordable rehab programs available. It is backed by the FHA, which means you have the same guidelines as you would for a standard FHA loan. The largest difference in this loan and any other rehab loan is the amount of money you must put down in order to fix up your home. Most rehab loans require a large chunk – typically 20 percent, but the 203K program only requires the standard 3.5 percent. For example, if you wished to purchase a home for $200,000 and make the standard $35,000 in changes, which are allowed on the streamline program, you would have to put down $8,225. This allows you to get the 203K loan, purchase/refinance your home, and make the designated changes to the home.
Surviving the Waiting Period
Sometimes, the hardest part of getting a loan after a bankruptcy is the waiting period. The good news is that the FHA has severely decreased the amount of time you must wait. For Chapter 7 bankruptcies, you must wait 2 years after the discharge date, not the date you filed for bankruptcy. For Chapter 13 bankruptcies, you must be able to prove that you have made timely payments on your Chapter 13 agreement as well as obtain approval from the trustee overseeing the BK.
If you are still within that 2-year waiting period, you might be eligible for an exception. The exception pertains to those borrowers that suffered a job loss or unexpected turn of events during the economic crisis and the program is called the “Back to Work Program.” These issues are not looked upon as any fault of your own. If you were forced to file for bankruptcy because of a loss of income because your company closed, you were down-sized, or just let go due to no fault of your own, you may be able to forgo the 2-year waiting period for the streamline 203K loan, but you have to be able to prove that your decreased income was a result of a job loss or something similar. Be prepared to show the following to prove your case:
- A decrease of 20 percent of your income during the time period when you suffered a negative economic event. This decrease had to have occurred for at least 6 months in order to qualify.
- Proof of your bankruptcy, its type, and the date it was filed/discharged.
- Show improvement from the occurrence, including recovered income, positive credit reporting since the event, and a stable job.
The evidence is easy to provide to your streamline 203K loan lender. Your income can be proven with tax returns or W-2s from the time period when the negative events occurred. The same is true for your improved income – you can provide current tax returns, W-2s, and paystubs to show you have turned things around. Your lender will also use your credit report to help determine if you have turned your financial life around. They will look at recent usage of your credit and payments to determine if you are back on track.
If you qualify for the “Back to Work” program and do not have to wait the time period necessary after filing for bankruptcy, you will then have to undergo housing counseling. This will help you understand what you are getting into and to make sure you can afford the loan. It is just an extra precaution for the lender and yourself to ensure that you can become a successful homeowner again.
Making the Changes
The streamline 203K loan program is the perfect way to make changes to your new or existing home, even if you have suffered a bankruptcy. Whether you have to wait the entire 2 years or you can cut the time short, you have the ability to make significant changes to your home as long as they are not structural and do not exceed $35,000.
If you suffered a bankruptcy and are ready to be a homeowner again, check out the lenders that offer this program in your area and get started today!