February 11, 2014
A reader asks, “I am one year out of a bankruptcy. My income tax refund was offset by unemployment, I still owe them another $9,000. Am I eligible for FHA loan?”
The questions asked here are too general to answer directly–FHA loan rules vary depending on the type of bankruptcy and a borrower’s circumstances can play a large part in whether another FHA loan is possible after the bankruptcy proceedings.
For example, when it comes to Chapter 7 Bankruptcy, FHA loan rules in HUD 4155.1 state 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.”
For Chapter 13 bankruptcy, the rules state:
“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 debt issue mentioned in the reader question may depend on a variety of factors including what agency the money is owed to and whether or not payment plans exist for the debt and have been followed. Borrowers who need additional information on such matters should contact the FHA directly at 1-800 CALL FHA.
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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