June 27, 2011
We’ve had a lot of recent questions about how bankruptcy and related issues can affect a borrower’s chances to be approved for an FHA home loan. The good news is that filing for bankruptcy does not automatically disqualify a borrower from getting an FHA insured loan.
Just like any other loan applicant, the FHA and lender examine several factors when deciding to approve an FHA loan. A borrower must be able to show stable income and a record of dependable payments regardless of a bankruptcy filing, so a borrower’s habits and track record in the wake of a Chapter 7 or Chapter 13 bankruptcy proceeding is just as important as a “typical” FHA loan applicant’s.
How does a bankruptcy affect a borrower’s eligibility for an FHA mortgage?
The short answer is that much depends on the type of bankruptcy, how much time has passed and as stated above, the borrower’s credit record in the wake of the bankruptcy. For Chapter 7 cases, where assets have been liquidated, FHA rules state that at least two years must pass before the borrower can apply for a home loan insured by the FHA.
It’s important to point out that the FHA requirement is only part of the picture–a lender may ask for three years or longer before allowing a borrower to re-apply. Some lenders are willing to work with a qualified borrower after the FHA two-year minimum, but they are not required to do so.
FHA rules add the following: “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.”
When it comes to
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: