April 23, 2015
A reader asks, “I had a Chapter 7 Bankruptcy discharged on 09/16/13. My home was not included in the BK. I have owned the home for 3 years and have never missed or been late on a payment. We are considering selling our current home and purchasing another one closer to where my wife and I work.”
“We have over $100,000 in equity in our current home. We have a combined income of $240,000 a year. We have reestablished our credit and have scores in the high 600′s. We currently have an FHA loan. What is the waiting period to qualify for another FHA loan after CH. 7 BK discharge? I have heard 2 years. Is there any way to reduce this time?”
The FHA has a Frequently Asked Questions list that includes answers about bankruptcy issues like this. According to the FHA official site, the presence of a Chapter 7 bankruptcy does not automatically disqualify a borrower from applying for an FHA home loan, provided certain conditions are met and the lender is willing to approve the loan.
From the FHA/HUD official site:
“A Chapter 7 bankruptcy (liquidation) does not disqualify a borrower from obtaining an FHA mortgage if at least two years have elapsed since the date of the discharge of the bankruptcy. Additionally, the borrower must have re-established good credit or chosen not to incur new credit obligations. The borrower also must have demonstrated a documented ability to responsibly manage his or her financial affairs.”
The reader question includes whether or not it’s possible to get an FHA loan considered even though the borrower has not waited out two years. According to the FHA, “An elapsed period of less than two years, but not less than 12 months, may be acceptable if the borrower can show that the bankruptcy was caused by extenuating circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner. ”
But that’s not all-the burden of proof, so to speak, is on the lender to verify that the borrower is a good credit risk in these circumstances. “Additionally, the lender must document that the borrower’s current situation indicates that the events that led to the bankruptcy are not likely to recur.
As you can infer from reading the above, all such FHA loan applications would be handled on a case-by-case basis, so it’s best to discuss your situation with a loan officer. Remember that no two lenders are alike, and while FHA loan rules may permit a borrower to apply for a new FHA mortgage as little as 12 or 13 months after the bankruptcy discharge date (not the filing date), the lender’s standards would also play a part in determining what’s possible.
Do you have questions about FHA home loans? Ask us in the comments section. All questions and comments are held for review before they are posted to the site.
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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