July 7, 2014
A reader asks, “I had a FHA mortgage with my previous home. Because of circumstances beyond my control, I had to file bankruptcy and my home was foreclosed on. It has been almost 2 years since the bankruptcy was discharged. Would I be eligible for another FHA mortgage and if so, when could I apply? Also my sister wants to buy the new home with me. Could she be a second borrower?”
FHA loan rules are different depending on what kind of bankruptcy was filed. In some cases the borrower may not only be subject to a minimum waiting period, but also may need to get court permission in order to be obligated on the new home loan.
For example, look at the rules covering Chapter 7 bankruptcy and a new FHA loan application; these rules are printed in HUD 4155.1 and include the following:
“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. During this time, the borrower must have:
–re-established good credit, or
–chosen not to incur new credit obligations.
An elapsed period of less than two years, but not less than 12 months, may be acceptable for an FHA-insured mortgage, if the borrower:
–can show that the bankruptcy was caused by extenuating circumstances beyond his/her control, and
–has since exhibited a documented ability to manage his/her financial affairs in a responsible manner.”
Based on reading what was reprinted from HUD 4155.1 above, a wait time of 12 months minimum may be acceptable depending on circumstances.
That possibility under FHA loan rules does NOT automatically mean the borrower will be allowed by the lender to apply before the two-year minimum. And as mentioned above, the ability to do so assumes the borrower is financially qualified to apply for the loan–since the time of the bankruptcy’s discharge the borrower must have worked to re-establish good credit and a reliable payment history.
Borrowers who do not have good credit post-bankruptcy, or who have missed payments in the last 12 months leading up to the new loan application will find it quite difficult to convince a lender to approve a credit application.
Finally, the last part of this reader question mentioned a co-borrower. FHA loan rules do permit a co-borrower, but all parties obligated on the FHA loan must credit-qualify with FICO scores, loan repayment history, employment, etc.
Do you have questions about FHA home loans? Ask us in the comments section. You can apply or get pre-approved for an FHA loan at FHA.com, a private company and not a government website.
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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