FHA home loan after a bankruptcy
Federal Housing Administration (FHA) does make home loans after a bankruptcy. That is the good news. The bad news or conditions are a waiting period and establishment of a good credit history after bankruptcy.
The Federal Housing Administration home loans insurance programs contains a required waiting period for new FHA home loans after filing bankruptcy. Although bankruptcy is not rare anymore, it still carries a consequence with credit intuition. This stigma leads many who declare bankruptcy to give up and lose hope for home ownership. But recovering from bankruptcy and qualifying to buy a new home happens in less time than in the past.
The FHA mission is insuring loans for qualified borrowers who have issues that exclude them from conventional loan programs, such as less than perfect credit histories and low down payments. The FHA does qualify borrowers with a bankruptcy in their past under certain conditions. This article at the FHA web site helps with a sense of the FHA bankruptcy rules. http://www.fha.com/fha_requirements_credit
Chapter 7 bankruptcies dismiss most all the debt obligations. The person who has declared bankruptcy will have their credit score drop significantly and will have a hard time getting credit for a while afterward. The FHA will insure mortgages two years after the chapter 7 discharge date.
The borrower must establish a credit history in those two years and it cannot contain any late payments, collections judgments or other credit blemishes. Some banks will require that a borrower wait a total of three years before applying for a new home loan.
Be prepared to write a letter outlining the causes for the initial bankruptcy. If the bankruptcy resulted from conditions outside personal control, such as the death of a spouse, serious illness or natural catastrophe, the FHA will allow you to qualify 12 months after your discharge date. To get this exception, the borrower must be able to document the extenuating circumstances and your ability to handle personal finances responsibly. Regardless of the waiting period, the borrower must show that the financial situation has changed enough to prevent another bankruptcy.
A Chapter 13 bankruptcy features a court-ordered repayment schedule for debts. The chapter 13 repayment plan is the first step. By making the twelve months of on-time payments into the plan the borrower will meet one of the main requirements of the FHA. This will indicated to a lender that the borrower has become more responsible in managing finances.
Secondly, borrowers will need to get approval from the bankruptcy court to enter into the mortgage agreement. The borrower must have good credit, a satisfactory employment history and other financial qualifications.
Because the borrower has a record of responsibilities for the debts after chapter 13 bankruptcy the FHA only requires a 12-month wait from the date payment began. These payments must be on time and according to agreement.
Federal Housing Administration makes home owner ship possible for people who file bankruptcy. The waiting period can be as little as 12 months. The other conditions of on time payment history and standard loan conditions are moderate in nature.