January 26, 2012
A tricky FHA loan question came in recently asking about FHA refinancing, bankruptcy, and more. The reader asks;
“I have a situation where i have filed BK chapter 7 and had my house foreclosed, at the same time i had a money lender purchase a house for me and put it in my name and I make payments to him, I have been making payments for 21 months all on time and with taxes and insurance. I would like to refinance through a regular lender and pay off the original loan…So how do I refinance this loan and when am I eligible to qualify? It has been over two years from filing chapter 7 and it will be two years from the foreclosure in Oct 2012. Any thoughts?”
There are several issues that need addressing here. We’ll start with the bankruptcy, where FHA loan requirements state the borrower cannot apply for a new FHA home loan for a minimum of two years since the discharge date of the Chapter 7. Borrowers should not confuse the discharge date with the date of filing Chapter 7.
Borrowers are required to wait at least two years from the time of a foreclosure, and many lenders require a three-year wait rather than two. Your individual experience may vary from lender to lender, so it is best to shop around.
The other issue mentioned in the reader’s question has to do with refinancing a loan–in this case, it seems that the loan in question is not from a bank but rather a private individual who purchased the home in the name of our reader.
Assuming that is correct, FHA refinancing could be a tricky proposition. There are many issues–who is actually named on the original mortgage loan? Was there a loan in the first place? Or did the buyer pay cash for the property?
FHA rules would require the original borrower to apply for refinancing. And in a situation where a borrower is paying another person who has purchased the home in cash, there would be no original loan to refinance–the borrower would have to apply for a new purchase FHA home loan and purchase the home from the original owner in the usual way.
This is all speculation–there’s no way to know whether any of this advice applies in the specific situation without knowing much more about the details. In this unique circumstance, the borrower should contact the FHA directly to ask what the best course of action might be based on current FHA rules and the lending climate among approved FHA lenders.
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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