FHA Loans and Bankruptcy
"I filled for a Chapter 13 bankruptcy in 2009, then converted it to a Chapter 7 which was discharged in 2012. I would like to buy a house, but was told I had to wait 2 years from the 2012 date. What process should I take to try and qualify for an FHA loan under the 2 year wait period after bankruptcy?"
FHA loan rules on Chapter 7 bankruptcy are found in HUD 4155.1 Chapter Four, Section C. It says:
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.
The rules state that two years must elapse from the time the bankruptcy is discharged, not when it is filed--that is a very important distinction to make.
It's also good to know that this two-year minimum could have exceptions in certain cases according to Chapter Four. FHA loan rules for exceptions to the two year waiting period say:
"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.Note: The lender must document that the borrower's current situation indicates that the events which led to the bankruptcy are not likely to recur."
It might be easy to overlook that these FHA loan rules do not require any bank or lender to offer a shorter wait time; this shortened "seasoning period" is at the lender's discretion.
Any borrower who wants an FHA loan in the wake of a bankruptcy should be prepared to provide the required proof mentioned here. If you have at least one year of on-time payments and has documented the same, you might stand a better chance at getting an FHA loan approved based on your circumstances--but there is definitely a waiting period of some kind after the bankruptcy, regardless. Much depends on your circumstances--discuss your needs with a loan officer for more information.
Do you know what's on your credit report?
Learn what your score means.