March 13, 2015
A reader asks, “On 3/11/15 I was told by a potential lender that consumers who have claimed bankruptcy must wait 4 years to potentially qualify for ANY loan… conventional or FHA. My bankruptcy was discharged in August 2013 and I have been rebuilding my credit ever since…. with the hopes that I could start looking at buying a home at the near 2 year mark, post discharge. Can someone please clarify this for me? And give the source of the data that is accurate? The lender just blew me off…”
This reader’s question asks if what a lender told her about waiting four years after bankruptcy may be true if those are that particular lender’s standards. Those standards may vary from bank to bank, lender to lender. But if the lender was attempting to cite FHA policy on FHA guaranteed loans, the statement is not accurate insofar as official FHA policy is concerned.
FHA loan standards for loan approval following a bankruptcy may vary based on the type of bankruptcy and other circumstances. There is no single, across-the-board “bankruptcy policy” because there are more than one type of bankruptcy and much depends on what happens after it has been discharged.
Consider what the FHA loan program called Back To Work has to offer borrowers who have had certain types of financial difficulty. According to the FHA official site:
“As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a preforeclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”
Therefore, according to an FHA Mortgagee Letter about Back To Work, “FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that:
–certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrower’s control;
–the borrower has demonstrated full recovery from the event; and,
–the borrower has completed housing counseling.”
Housing counseling is, according to the FHA official site, “an important resource for both first-time home buyers and repeat home owners. Housing counseling enables borrowers to better understand their loan options and obligations, and assists borrowers in the
creation and assessment of their household budget, accessing reliable information and resources, avoiding scams, and being better prepared for future financial shocks, among other benefits to the borrower.”
The FHA Back To Work program allows borrowers to be considered for a new FHA loan post-bankruptcy, but it does require the participation of a lender. Not all lenders are willing to offer loans under Back To Work, so borrowers may have to shop around for a financial institution that will. The FHA cannot force banks to loan money to borrowers who don’t meet that company’s financial standards.
That said, borrowers should try to find a lender who might be willing to work with them–for the right borrower and the right financial institution a new FHA loan may be possible.
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.
Browse by Date: