June 4, 2013
A reader asks, “We want to know, if filing bankruptcy 3 years ago will hurt our chances? We had to do that because I lost my job. But now I am on social security disability so I do have income.”
“Our credit score is about 650. My husband makes 60K per year and I get 12K per year but little in savings. We have established new revolving credit within the past two years. Is this good enough to apply and get pre-approved for a home loan?”
We’ve been getting a number of bankruptcy-related questions lately, and one thing we’d like to remind potential FHA borrowers in this situation is that a call to 1-800 CALL FHA (the official help line of the FHA) can answer many of these bankruptcy questions as they pertain to your specific circumstances.
In general, FHA loan rules say that bankruptcy is not, in and of itself, an automatic barrier to an FHA mortgage. A great deal depends on your circumstances as well as what you’ve done to rebuild your credit in the meantime.
Here’s what the FHA loan rules, as found in Chapter Four of HUD 4155.1, have to say about Chapter 7 bankruptcy cases:
“A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA-insured mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy.”
It’s important to point out that some lenders may require a longer wait–this is at the lender’s discretion. In the time between the bankruptcy and the FHA loan application the borrower must have “re-established good credit, or chosen not to incur new credit obligations.”
When it comes to Chapter 13 bankruptcy issues, the general idea is the same–Chapter 13 is not an automatic disqualification from getting an FHA mortgage loan.”
FHA loan rules say: “A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the lender documents that
- one year of the pay-out period under the bankruptcy has elapsed
- the borrower’s payment performance has been satisfactory and all required payments have been made on time, and
- the borrower has received written permission from bankruptcy court to enter into the mortgage transaction.”
The court permission issue is very important and one FHA lenders will take seriously. It’s best to begin exploring your court permission requirements early as each state may have different procedures and regulations that cover how this is handled.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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