July 14, 2016
Some borrowers want to know how credit issues such as foreclosure, Chapter 7 bankruptcy, and Chapter 13 bankruptcy can affect their ability to get an FHA mortgage loan or refinance loan.
While those who have been through such proceedings may have a better understanding of what happens to your credit, many who are facing the option of filing bankruptcy, going into loan default and foreclosure, or even doing a deed-in-lieu of foreclosure may not understand what’s at stake.
The video above explains some basics about bankruptcy. But how does bankruptcy in particular affect your ability to get an FHA loan? Like foreclosure and deed-in-lieu, filing bankruptcy usually requires a mandatory “seasoning period” or waiting time between the bankruptcy and the new loan application.
It’s crucial to note that this waiting period begins when the bankruptcy is discharged, NOT when it is initially filed. Furthermore, the type of bankruptcy can affect the length of the waiting period. In some cases a borrower may need to get the court’s permission to apply for any new type of major credit including an FHA mortgage loan.
FHA loan rules do provide some exceptions to the waiting period, but in general you should expect to wait a minimum of 12 months depending on circumstances, maybe longer.
And there’s an added consideration. FHA loan rules are not the only ones that dictate how such transactions are to proceed post-bankruptcy. The lender may also have standards which must be met and those would factor into the decision to approve or deny credit. That’s why it is very important to have a conversation with the lender about your specific circumstances and how likely it is to be approved for a loan based on them.
It’s not impossible to get a loan for a new home after filing bankruptcy, but no potential borrower should expect to get into a new FHA mortgage until at least 12 months have elapsed after the bankruptcy has been discharged. That applies to both Chapter 7 AND Chapter 13 bankruptcy filings.
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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