February 12, 2014
We’ve gotten plenty of reader questions lately on the subjects of down payments, bankruptcy, and eligibility for FHA home loans. Here’s one:
“Is there any company that will finance a small condo without a down payment. Thank you”
And here’s another:
“My wife and I surrendered our home thru a chapter 13. The chapter 13 was a 100% repayment plan that was successfully discharged in December of 2013…We have entered into a lease option home purchase and would like a straight answer on how long of a “waiting period” we must endure before we are able to finance a home again? We also have about $80K in sweat equity against an agreed upon purchase price of $270K. What type of down payment can we expect to need?”
FHA loan rules for down payments are simple–the borrower is required to make a down payment–a “minimum cash investment” of 3.5%. There’s no such thing as a “no downpayment” FHA home loan.
The answer to the “waiting period” question for Chapter 13 can be found in HUD 4155.1, which says:
“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 FHA loan rules for Chapter 7 bankruptcy cases differ from Chapter 13–borrowers should not assume the standards for one are identical to the other. Borrowers in Chapter 7 cannot apply for a new FHA home loan until they have waited a minimum of 12 months since the discharge of the bankruptcy. Two years is better, but FHA loan rules do provide for those who have waited at least 12 months:
“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 more information on these programs 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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