August 16, 2018
Getting an FHA home loan after filing for bankruptcy is not impossible, but it’s very important to understand the rules and requirements of FHA mortgages in this area. Do you know what it takes to be approved for an FHA single family home loan after a Chapter Seven or Chapter 13 bankruptcy?
FHA Home Loans Are Possible After Bankruptcy
The first thing to understand about getting an FHA home loan following a bankruptcy is that two basic factors will affect your ability to be approved. These are NOT the only factors to consider, but they are the initial requirements; all other issues likely will fall behind these two areas.
The first is how much time has passed since your bankruptcy was discharged. FHA home loans require a minimum amount of time to pass after the discharge of your bankruptcy before the lender can even consider your home loan application.
FHA Loans And Bankruptcy Seasoning Periods
Note that the minimum time requirement is NOT when the bankruptcy is filed, but rather after it has been discharged. Depending on the nature of your bankruptcy filing you may have to wait a minimum of one year. Two to three years is common depending on circumstances, the lender, and other factors.
This time is known as a seasoning period and is non-negotiable. You must wait out a minimum seasoning period before the lender can accept your home loan application.
Some bankruptcy cases will require the court’s permission to enter into a new credit agreement; others may not. You will need to discuss your home loan needs with a loan officer to determine what the requirements are in this area based on your circumstances.
Establishing New Credit After Bankruptcy
Your lender will need to see that you have worked to re-establish good credit habits in the wake of your bankruptcy. Some borrowers choose not to get new credit cards or other lines of credit; in these cases you may need to supply evidence of any recurring payment and how you have handled those recurring payments.
Lender standards will apply, but in many cases copies of your utility bills, student loans or other payments will help. Be prepared to furnish this type of documentation; knowing in advance that you need to supply it can help you prepare and gather your supporting documents.
FHA Loan Standards And Lender Requirements
Your FHA lender may have standards for loan applications following a Chapter 13 bankruptcy or Chapter 7 bankruptcy that are more strict than FHA loan program minimums. This is permitted under FHA loan rules, and additional factors may also affect your loan such as whether state law has a say, if the borrower is married in a community property state, etc.
Discuss your home loan needs with a loan officer to determine what you will need to do with that financial institution in terms of the seasoning period, establishing new credit or evidence of new credit, etc.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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