August 23, 2017
Can I get an FHA loan after bankruptcy? That question is a common one, and the answer depends as much on the borrower as it does on the rules of the FHA single family loan program.
In general, those who experience bankruptcy will be required to wait out a “seasoning period” described in HUD 4000.1 (the FHA loan handbook). Depending on what type of bankruptcy you filed, borrowers may also be required to get court permission before attempting to proceed with a new home loan.
Mandatory FHA Loan Seasoning Periods Following Bankruptcy
Bankruptcy rules may vary depending on the type, but in general a borrower’s minimum waiting period will be 12 months from the time the bankruptcy is discharged. The waiting period does NOT begin from the filing date.
FHA loan rules state that a borrower must also, from the time of the bankruptcy, show patterns of reliable credit activity or indications that the borrower has chosen not to apply for new credit.
The one-year waiting time is a minimum requirement-borrowers could, under FHA loan rules, be required to wait as long as two years depending on circumstances.
And that waiting period ONLY addresses the bankruptcy; those who experienced foreclosure or deed-in-lieu of foreclosure may be required to wait as long as three years from the time those transactions officially take the property out of the borrower’s name.
In addition to these concerns, borrowers should note that lender standards and state law may also have a say in when a new home loan transaction is possible after bankruptcy.
Some Exceptions May Be Possible
As you can tell from all of the above, each situation may require different approaches. Lenders are permitted to make exceptions to longer seasoning periods in cases where the bankruptcy was clearly due to situations beyond the borrower’s control.
Good examples; there may be shorter waiting periods (but with a minimum of one year) possible in cases where serious medical issues were involved, or the death of a wage earner. Borrowers will be required to furnish supporting documentation to make the case for a shorter seasoning period.
The borrower’s post-bankruptcy credit activity will be scrutinized to justify making the new loan and credit “best practices” (no late or missed payments in the 12 months leading up to the application) will be more important than ever in such cases.
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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