February 5, 2015
A reader asks, “In june 2015, i will have two years post bankruptcy, chapter 7. I want to purchase a home, first time buyer, credit score of 710, my question is, Am I able to start the process now, or should i wait the two full year mark? ( I was told this by a mortgage rep that fha requires two full years post bk) .”
The FHA official site has a FAQ page about FHA loans after a Chapter 7 bankruptcy proceeding. It says:
“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.”
The reader’s comment about the two year waiting period is correct, based on the reading of the above line from the FHA FAQ page. Additionally, that page states that 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.”
But the FHA DOES offer an exception of less than two years depending on whether or not the lender can document that bankruptcy is unlikely to happen again. It’s also important to note that the lender’s participation is required and the lender does NOT have to offer credit before the two year seasoning period has elapsed. From the FHA official site:
“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. ”
“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. “
Again, the lender’s participation would be necessary for this to happen and not all lenders are willing to work with the FHA’s exception as mentioned above.
Do you have questions about FHA home loans? Ask us in the comments section.
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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