January 18, 2012
A reader asks a question about FHA loans and bankruptcy; “It will be two years since my bankruptcy discharged. I want to get a home and I am reading that the FHA will turn you down for post-bankruptcy late payments. Is this true?”
According to the FHA official site at FHA.gov, the general rules for FHA loans post-bankruptcy include the following:
“The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if:
– two years have passed since a bankruptcy has been discharged
– all judgments have been paid
– any outstanding tax liens have been satisfied or appropriate arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue
– three years have passed since a foreclosure or a deed-in-lieu has been resolved”
Those are general guidelines and it should be noted that these are minimums established by the FHA and HUD. Individual lenders may have stricter requirements–for example, some banks require a borrower to wait three years before applying for a new FHA home loan as opposed to the FHA two-year minimum.
Some lenders may scrutinize a borrower’s post-bankruptcy payments a lot closer and indeed may turn down an FHA mortgage loan applicant if the payment record appears unreliable post-bankruptcy.
A related question can be found on the FHA’s list of frequently asked questions about FHA mortgages;
“Question 4 – Can a mortgagor acquire a FHA-insured mortgage while in a Chapter 13 bankruptcy?”
The FHA replies to this question stating, “HUD’s underwriting rules state that a person in Chapter 13 bankruptcy can purchase a home subject to a FHA-insured mortgage. Requirements are the applicant (1) must have completed one year of payments as required while under Chapter 13 and (2) must obtain a letter from the Trustee of the court, stating the dollar amount the applicant can borrow.”
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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