February 19, 2015
A reader asks, “We Were discharged and our chapter 13 was completed in Dec of 2014… Our Credit scores are already in the 700′s and we want to sell our current home (never a late payment) and purchase another with a huge down payment from the equity in our current home + some savings. Is it to early to apply for a FHA Loan?”
FHA loan rules say that in general, a lender may consider a borrower for a new FHA home loan following a Chapter 13 bankruptcy IF the borrower has made reliable payments on the plan created by the Chapter 13 bankruptcy for a period of one year.
Eligibility is not automatic–those payments must be verified and the applicant must have written permission from the court to apply for the loan.
All of this assumes that the lender is willing to work with the borrower following a Chapter 13 bankruptcy–the lender is not required to do so.
That said, in 2013 the FHA issued a mortgagee letter announcing the Back To Work Program which may permit some borrowers who have had negative economic events to qualify for an FHA home loan. From FHA Mortgagee Letter 2013-26:
“As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a preforeclosure sale, deed-in-lieu, or foreclosure.
Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.
To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that:
certain credit impairments were the result of a Loss of Employment or
a significant loss of Household Income beyond the borrower’s control;
the borrower has demonstrated full recovery from the event; and,
the borrower has completed housing counseling.”
Talk to a loan officer about the FHA Back To Work program mentioned here to see if your circumstances qualify.
Do you have questions about FHA home loans? 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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