December 9, 2015
In our last blog post we discussed the rules found in HUD 4000.1 about waiting times for borrowers who want to purchase a home with an FHA mortgage after a Chapter 13 bankruptcy.
The FHA single family home loan rule book also has instructions for lenders and borrowers about mandatory waiting times and other requirements for those seeking a home after a Chapter 7 bankruptcy.
Borrowers with a Chapter 7 may not automatically be barred from another home loan, but FHA mortgage loan rules do require certain things of the lender and the borrower. From HUD 4000.1:
“A Chapter 7 bankruptcy (liquidation) does not disqualify a Borrower from obtaining an FHA-insured Mortgage if, at the time of case number assignment, at least two years have elapsed since the date of the bankruptcy discharge.”
FHA loan rules put the burden on the applicant to begin working on establishing a pattern of financial responsibility following a Chapter 7–this pattern of credit building, on-time payments and related behavior is considered a condition of loan approval. During the mandatory two year waiting perdiod the borrower must show that he or she has “re-established good credit; or chosen not to incur new credit obligations” according to HUD 4000.1.
In some cases an exception to the two year waiting period may be possible, but the borrower must meet certain requirements according to FHA loan rules:
“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 the Borrowers control; and
–has since exhibited a documented ability to manage their financial affairs in a responsible manner.”
This exception is permitted at the lender’s discretion and the borrower may be required to furnish documentation to give the lender enough justification to allow less than a two-year wait.
One area related to bankruptcy is foreclosure–a borrower may be experiencing foreclosure and bankruptcy proceedings at the same time. This can complicate matters, especially if the foreclosure is on an FHA insured mortgage loan. We’ll cover issues related to foreclosure and the mandatory waiting times needed before a borrower can re-apply for another FHA mortgage in a future blog post.
Do you work in residential real estate? You should know about the free tool offered by FHA.com. It is designed especially for real estate websites; a widget that displays FHA loan limits for the counties serviced by those sites. It is simple to spend a few seconds customizing the state, counties, and widget size for the tool; you can copy the code and paste it into your website with ease. Get yours today:
http://www.fha.com/fha_loan_limits_widget
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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