FHA Loans & Bankruptcy - Can I Get Approved?

With the rise of Bankruptcies in our nation as a resultmet. How about that? Would any sub prime lenders
of the recent financial upheaval many are wondering ifallow a current 13 to be underwritten? I don't think so.
they will qualify for an FHA Home loan with a recentThat's why this type of mortgage is so helpful to many
bankruptcy on their credit report and in county records.people and you get market interest rates rather than
Others may be seeking other types of conventionalsub prime rates with pre-payment penalties. There are
financing. In either case they would like to know how ano prepay penalties on an FHA loan. So, in essence a
past bankruptcy will affect their ability to obtain aChapter 13 is treated kind of like a consumer debt.
mortgage. The matter gets a little more complicatedMust show 12 months of payments made on time.
since a Chapter 7 and a Chapter 13 will bring to bearHow many home buyers are there that need this
different qualifying guidelines depending on which loaninformation? They've been told by their local bank or
program the borrower is seeking.by conforming lender that they don' t qualify and so
Chapter 7 bankruptcytheir hopes and dreams are dashed thinking they can't
Must be discharged for at least 2 years. If thepurchase a home for several more years. This
discharge date was more than 12 months but lessinformation should cause them to contact a lender
than 24 months than extenuating circumstances mustwho specializes in FHA home loans and see about
be documented. Not being able to sell a home due to agetting approved.
job loss or transfer would not qualify as an extenuatingSimilarly to a Chapter 13 Bankruptcy would be a
circumstance. The borrower must have re-establishedConsumer Credit Counseling scenario. Folks who have
credit and can show a payment history to the newelected this route to pay down their debts should be
creditors. Or, they may choose to not re-establishrelieved to know that they also can apply for a
credit because they do not want to incur anymoremortgage as long as they meet similar guidelines.
debt. It will also require the lender to document that theShow that they have made payments for 12 months
situation that led to the bankruptcy no longer exists.in a timely fashion and get permission from the
The reason for this is simply that the lender does notcounseling agency to purchase a home and incur new
want to see the borrower get into financial troubledebt.
again. So, if they can document what led to theIn all 3 scenarios listed above it is important to not incur
bankruptcy and how they have corrected the habitsany derogatory credit. None whatsoever. Just put
or situation that led them to file that would show theyourself in the underwriters shoes. There is a BK7 or
borrower has become financially responsible and theBK13 or CCC and derogatory credit after the
probably of filing again sometime in the futuredischarge or during the repayment period - how do
diminishes greatly. But, mainly it demonstrates the abilityyou think that will look? It will look like the person has
to handle the overall household finances especially incomplete disregard for paying their bills on time. We all
regards to being able to make a mortgage paymentknow that situations arise that prevent bills to be paid
on a timely basis each month.on time, however, most of these are not extenuating
Chapter 13 bankruptcycircumstances from a lender's perspective. So, keep
Requires that 12 months of payout has occurred andyour nose clean.
that the payments have been made on time and alsoFor those of you who meet these basic guidelines set
the court would have to give permission to enter into aforth above take the time to contact a mortgage
mortgage transaction. What this means is that aprofessional who is an expert in FHA loans and see if
person could be in a Chapter 13 currently and be ableyou currently qualify to purchase a home.
to obtain financing if all other underwriting guidelines are