August 17, 2017

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FHA Loans Reader Question: Chapter 7 Bankruptcy

There have been many reader questions in the last six months about bankruptcy, foreclosure, and the required waiting period for new FHA home loans after these procedures.

One reader asks, “When does the waiting period began per FHA Guidelines? If you included a conventional loan in a Chapter 7 bankruptcy, does the waiting period began at the discharge date? Or does the waiting period began at the trustee sale?”

The short answer is that after Chapter 7 bankruptcy, the borrower must wait out the minimum “seasoning” period plus any additional amount required by the lender–three years in many cases though some lenders may be willing to work with qualified borrowers after the FHA two-year minimum for Chapter 7. This waiting period begins from the time the bankruptcy is discharged.

Since bankruptcy and foreclosure are among our most frequently asked questions, here’s some additional information on waiting periods and other requirements for both Chapter 13 and Chapter 7 bankruptcy:

CHAPTER 13 BANKRUPTCY WAITING PERIODS

FHA rules allow a lender to consider approving an FHA loan application from a borrower who is still paying on a Chapter 13 Bankruptcy–but only if those payments have been made and verified for a period of at least one year. Additionally. the court trustee’s written approval is also required. The borrower must provide a detailed explanation of the bankruptcy with the loan application, and must have good credit, employment history and other financial qualifications.

CHAPTER 7 BANKRUPTCY WAITING PERIODS

At least 24 months must have elapsed since the discharge date of a Chapter 7 Bankruptcy. The discharge date should not be confused with the date bankruptcy was filed. As with Chapter 13 bankruptcy, FHA regulations demand a full explanation to be submitted with the FHA home loan application. To get a new FHA insured mortgage loan after Chapter 7, the borrower must qualify financially, have good credit since the Chapter 7 was filed and meet FHA employment requirements.

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