June 18, 2014
A reader asks, “Upon filing Ch 7 we never missed a payment. The problem we had was several years ago when CC companies raised their minimum payments and interest rates. We payed these increased payments for years until we knew we were going too run out of money.”
“We filed because we were literally using CCs to live. Make a CC payment only to use the credit for Food and Gas. My credit score went down a little but still around 680. It has been a year since discharge. With OK credit score and always making payments before and after Ch 7, Do we still have to wait another year to buy a home? We have a Home but would like to move from a townhouse to a house.”
FHA loan rules on this issue are very clear:
” 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.”
As we can see from the above, a wait time of 12 months minimum may be acceptable. However, the fact that this appears in the VA loan rulebook does not guarantee that the borrower will be allowed by the lender to apply before the two-year minimum. In fact, the lender may have higher standards, depending on the financial institution.
FHA loan rules do not force the lender to issue credit when the borrower doesn’t meet the minimum requirements of the lender–that’s something very important to keep in mind. The borrower in this case may need to shop around for a company willing to work with his or her circumstances.
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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