What Does Bankruptcy Mean For FHA Mortgages
Many people are still affected by the 2008 financial crisis. One common question from potential homebuyers is: How long after a bankruptcy can you wait before applying for an FHA loan?
It all depends on what type of bankruptcy you are filing. Let's look at the various types.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy means that your debts are discharged. If you are eligible for this type of bankruptcy, you won't have to pay them back. You can still get an FHA mortgage even though you have filed chapter 7. After filing a chapter 13, you can obtain an FHA Loan within two years.
These are the requirements:
You must have been filing chapter 7 bankruptcy cases for at least two years.
You must have either reestablished credit or opted not to take on any new credit obligations during this period.
FHA loans may be available to borrowers who have been in bankruptcy for less than 12 months. Only if you can prove that bankruptcy was due to circumstances beyond your control, and if you are able to show documentation of your ability to manage your finances responsibly.
The FHA does not make loans. They only insure FHA loans made by lenders. The availability of a lender willing to lend you money will determine whether or not you receive a mortgage. Although it doesn't always happen, some lenders may require that you wait for a longer period than the two years.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows you to restructure your debts and set up a payment plan. This does not preclude you from applying for an FHA mortgage. After filing a chapter 13, you can apply for an FHA loan within one year.
These are the requirements:
Your chapter 13 bankruptcy number must have been assigned at least 12 months ago.
All payments due at this point must be made on time.
To take out a new mortgage, you must have received written permission from the bankruptcy court.
FHA Loan Within One Year Of Bankruptcy
If you meet the FHA post hardship guidelines, you may be eligible for a loan 12 months after bankruptcy.
FHA has made a commitment to help borrowers in difficult financial situations. Lenders can participate and make an FHA loan within one calendar year of an "Economic event."
FHA defines an Economic Event as:
"Any occurrence that is beyond the borrower's control and results in Loss of Income or a combination thereof, which causes a decrease in the borrower's Household Income by 20% or more for at least six months."
No matter what type of bankruptcy you are in, your lender will require that you provide specific information about this Economic Event.
A HUD-approved counselor will also be required to provide housing counseling for one hour. You can have counseling in person, by phone, or online. However, it must be completed no later than 30 days before you submit a loan application.
Lenders can use the FHA's post-hardship guidelines. However, lenders have the right to apply stricter criteria than those guidelines allow. Find an FHA lender who will pre-qualify to determine if you are eligible for the program.
