Financing 4 years after bankruptcy

2 Replies

Please note, I have re posted this question here since it is a finance question.

I would appreciate any advice that someone can provide on what my best rout might be for financing a flip. The issue that I have is that a little over 4 years ago my wife and I had to declare bankruptcy and our home was foreclosed by the lender. Our financial problems stemmed from a major medical issue that I had that resulted in medical bills that we could not possibly pay in several lifetimes! Since that time we have done our best to get back on track by saving every nickel we have. Our total assets are approximately $150,000 and include a rental home valued at $75,000, two lots in a subdivision valued at $25,000 and $50,000 in cash and stocks. We are now debt free. The problem I face finding a house to flip is because of what the bankruptcy did to our credit. My wife’s credit score is now 640 and mine is even worse. In order to finance a flip without financing I would need to sell our rental house which I am reluctant to do. I have checked out hard money lenders and read as much about them as I can on this site. Although this is an option, it does make me feel a little queasy based on what I’ve read. That leads me to my questions:

  • 1.)Could my wife get a home equity loan for $20,000-$30,000 on the rental and would this be a good idea? (The house is under her name.) I’m afraid the 640 credit score will prevent this and wondered and if any of you had secured real estate loans after you went bankrupt? I thought about Lendingtree.com but was afraid my inquiry for a loan might hurt an already bad credit score. I’ve been told it might.
  • 2.)Is it common for two people to invest in a flip as equal partners? If so, how do you find these people and would anyone advise me to not go down this road?
  • 3.)Should I just bite the bullet and use a hard money lender? Are there other options I should research?
  • I would really appreciate any advice that you might have. There are several properties I have my eye on and what I am trying to accomplish is to have my funds available/preapproved so that I can move on a deal quickly. Thanks, and I am very glad I invested in a membership for this site. There’s a lot of brain power floating around these forums and I look forward to learning from all of you
Originally posted by @John Taylor :

Please note, I have re posted this question here since it is a finance question.

I would appreciate any advice that someone can provide on what my best rout might be for financing a flip. The issue that I have is that a little over 4 years ago my wife and I had to declare bankruptcy and our home was foreclosed by the lender. Our financial problems stemmed from a major medical issue that I had that resulted in medical bills that we could not possibly pay in several lifetimes! Since that time we have done our best to get back on track by saving every nickel we have. Our total assets are approximately $150,000 and include a rental home valued at $75,000, two lots in a subdivision valued at $25,000 and $50,000 in cash and stocks. We are now debt free. The problem I face finding a house to flip is because of what the bankruptcy did to our credit. My wife’s credit score is now 640 and mine is even worse. In order to finance a flip without financing I would need to sell our rental house which I am reluctant to do. I have checked out hard money lenders and read as much about them as I can on this site. Although this is an option, it does make me feel a little queasy based on what I’ve read. That leads me to my questions:

  • 1.)Could my wife get a home equity loan for $20,000-$30,000 on the rental and would this be a good idea? (The house is under her name.) I’m afraid the 640 credit score will prevent this and wondered and if any of you had secured real estate loans after you went bankrupt? I thought about Lendingtree.com but was afraid my inquiry for a loan might hurt an already bad credit score. I’ve been told it might.
  • 2.)Is it common for two people to invest in a flip as equal partners? If so, how do you find these people and would anyone advise me to not go down this road?
  • 3.)Should I just bite the bullet and use a hard money lender? Are there other options I should research?
  • I would really appreciate any advice that you might have. There are several properties I have my eye on and what I am trying to accomplish is to have my funds available/preapproved so that I can move on a deal quickly. Thanks, and I am very glad I invested in a membership for this site. There’s a lot of brain power floating around these forums and I look forward to learning from all of you

 HI There John,

1) I doubt it, but there may be a bank out there (its possible) that will entertain a non owner occupied HELOC on an investment property with less than 680-700 fico scores. I dont have any sources for this however penfed.org, navyfcu.org, becu.org, or other credit unions may offer you a chance. CU's will typically have more out of the box lines of credit products as opposed to large bank HELOC's. The other option is to go to a business or community bank for their HELOC's on non owner properties but they usually dont like any foreclosure or BK records.

2) this is a personal decision and up to your preferences just, buyer beware and vet our your partner well

3) there are many options unless you get a seller who is willing to carry paper, commit to a land contract, lease option, or other form of contract for deed or take back a note for their title interests to control the property with out using an actual traditional or private/hard lending sources

As a comment aside, I've funded conventional financing deals if the foreclose was documented to be within/included inside the CH7 BK discharge papers. You will need to thoroughly document this foreclosure. The reason is because foreclosures have a 7 year time frames from the date the bank took back the property and the title exchanged hands however, if you can document it happened during the trustee's control of your assets (within the BK CH7) then the BK time frames of 4 years from the date of discharge applies (this is key!).

I'd recommend a professional lender not  a internet or retail big bank lender as they typically will not have the expertise or patience to deal with their underwriters on this type of file. 

This means if you can document it as a BK CH7 and its been 4 years since the date of discharge then you may qualify for a conventional loan again if your credit scores can get up to 620+.

Then again you can always qualify for FHA as a primary residence only loan as well with only 2 years after a BK discharge date. If you cant prove the foreclosure was inside the BK then with FHA you'll need to wait 3 years from the date of the foreclosure.

This is a bit complex so hopefully that wasnt too much info.

Albert Bui, Lender in CA (#345453), WA (#345453), TX (#345453) and TN (#345453)

Thank you so much for your reply. The foreclosure did occur at the same time of our bankruptcy. If I'm hearing you correctly then the 4 year rule you mentioned may apply. I'll contact some local lenders in my area and see if they can help with this. I really appreciate you mentioning this. I incorrectly assumed that since we have $50K in cash and a home that is paid for 100%, valued in excess of 75K, that we would be able to get pre approved for a loan of no more that $30-$40K. I now know that I was wrong. Oh well, I'll figure something out and once again, thanks for your help.

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