January 15, 2015
A reader asks, “We recently went through CH7 BK. We have high 500′s for both of our scores and have no debt besides one student loan at $90.00 a month and two credit cards with $0 balance and no payments due. What would our chances be of obtaining an FHA for first time home buyers. We have $5000 to put down and have a city program that will also help with more $ for closing/down payment. We want to buy in September/October. which would be 10 months after our BK discharge.”
There are a variety of issues at work in this reader question that should be addressed. Regardless of the bankruptcy issue, borrowers in general will find lenders requiring FICO scores upward of 620 for FHA home loans. It’s true that this is above the minimum requirements listed in FHA loan rules, but lenders are free to have more strict FICO score rules as long as those requirements are applied in accordance with Fair Housing laws and are “reasonable and customary”.
Down payments are determined by a percentage of the loan amount–3.5% is the minimum. The borrower would need to determine the amount of the down payment based on the amount of the loan.
FHA home loans don’t provide preference for first-time home buyers, though a lender may (or may not) offer a program aimed at first time home buyers. That would be up to the lender and is not part of the FHA home loan program.
With regard to Chapter 7 Bankruptcy, we’ve covered this issue before, but it’s worth repeating here. From the FHA loan rules published in HUD 4155.1:
“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.”
Borrowers who want to know if a particular lender is willing to work with them after a Chapter 7 bankruptcy has been discharged would need to discuss their circumstances with a loan officer.
Do you have questions about FHA home loans? Ask us in the comments section. You can also follow us on Facebook.
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: