February 7, 2013
A reader asks, “I had a bankruptcy discharged in 2009. My mortgage was part of this bankruptcy however the bank did not foreclose until 2012. I am employed and have an average credit score of 678. Would I qualify for a FHA loan on a new property?”
This is a tricky question because it includes both a bankruptcy AND a foreclosure. In such cases it’s best to contact the FHA directly for advice. Does the borrower’s two situations–bankruptcy and foreclosure–have any special consideration?
There are different possibilities depending on the type of bankruptcy (not mentioned in the reader question), but let’s examine the FHA rules for the borrower’s more recent foreclosure issue.
Can a borrower apply for an FHA mortgage in 2013 if there was a foreclosure action in 2012? FHA loan rules in HUD 4155.1 under the section titled, “Previous Mortgage Foreclosure”, the rules state:
“A borrower is generally not eligible for a new FHA-insured mortgage if, during the previous three years
• his/her previous principal residence or other real property was foreclosed, or
• he/she gave a deed-in-lieu of foreclosure.”
However, there is an exception listed in the rules:
“The lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.”
The reader question doesn’t provide quite enough detail to give more specific advice, but the reader should definitely contact the FHA for advice and assistance on this issue. To learn more, contact the FHA at 1-800 CALL FHA.
Do you have FHA loan or refinance loan questions? Ask us in the comments section.
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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