April 3, 2014
A reader asks, “I was pre-approved for a FHA loan in February and now that I have made an offer on a house, the loan company is saying I have to wait three years after my bankruptcy to qualify. Can you give me the length of time I have to wait for a FHA loan?”
FHA loan rules for mandatory waiting periods after a bankruptcy depend on a variety of factors including the type of bankruptcy. In some cases a borrower may need the court’s permission to enter into a new loan agreement, and in others there may be no choice but to wait out the minimum required time.
But the most important thing to understand about FHA loan bankruptcy requirements is that as long as the lender observes the FHA minimums, there are no rules stating that the lender can’t impose the standards of that financial institution above and beyond the FHA minimums. As long as those standards are applied in compliance with federal law, longer wait times may apply.
The two types of bankruptcy addressed in FHA loan rules found in HUD 4155.1 are Chapter Seven and Chapter 13. For Chapter Seven, FHA loan rules state:
“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, borrowers should know the following requirements from HUD 4155.1:
“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.”
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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