Can I Get a FHA Loan After Bankruptcy Before 2 Years?
Some borrowers may qualify for a loan insured by the Federal Housing Administration less than two years after the discharge of a bankruptcy. FHA requires the borrower meet some other qualifications, but the presence of a bankruptcy less than two years old doesn't automatically disqualify the borrower. FHA will not lend to anyone with a bankruptcy less than 12 months old in any situation.
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Chapter 7
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Chapter 7 bankruptcy provides a complete, or almost complete, elimination of all debts owed. The filer must earn a small enough income to qualify and if the filer has any assets, which are not exempt, the court may sell them to pay off the creditors. FHA generally requires applicants to wait at least two years from the discharged date before considering them for a mortgage. This timeframe is less than Fannie Mae's or Freddie Mac's mandatory four-year waiting period for post-Chapter 7 bankruptcy filers. In some cases, FHA only requires the borrower wait one year after the bankruptcy discharge.
Chapter 13
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Chapter 13 bankruptcies take significantly longer to discharge than Chapter 7 bankruptcies. A Chapter 13 reorganized the filer's debt and provides a payback period of up to five years. FHA does not always require the borrower's bankruptcy be discharged before offering a new FHA loan. In some cases, the borrower may obtain a new FHA loan while in the Chapter 13 bankruptcy, as long as the bankruptcy trustee approves it and the current mortgage payments are paid as agreed since the bankruptcy filing. FHA requires the Chapter 13 bankruptcy be at least one year old at application.
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Extenuating Circumstances
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Obtaining a new FHA loan after the discharge of a Chapter 7 bankruptcy requires documenting the bankruptcy resulted from an extenuating circumstance and not from financial mismanagement. FHA considers things such as high and unexpected medical bills, unemployment, injury and other unforeseen causes as extenuating circumstances. The borrower's credit must show a history of financial responsibility prior to the bankruptcy to qualify. If proven, then the borrower may receive an FHA loan only 12 months after the bankruptcy discharge. If the borrower did not show financial responsibility prior to the extenuating circumstance, then it is likely that the FHA may require the borrower wait at least 24 months prior to approval.
Credit Since the Bankruptcy
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Lenders closely review the entire post-bankruptcy credit profile, regardless of how long it has been since the bankruptcy. Bankruptcy provides a way for honest borrowers to obtain a fresh start. If a borrower's credit history shows late payments after the bankruptcy, then FHA may deny the loan even if the borrower waited more than two years.
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