FHA and Bankruptcy
February 20, 2009 by Eleanor
Filed under About Scores and Credit, Loan Programs
If you’ve been Bankrupt, and you want to purchase a home – FHA will allow you to do that… but there are some rules that FHA sets on you… and then there are the “Golden Rules.” What I mean by that is this:
FHA insures loans, but they don’t APPROVE the loans. FHA has guidelines, and rules which they set out for a Bank that says, “We will purchase a loan from you if the loan meets these specific parameters.” The BANK, who is actually lending the money, and getting FHA to INSURE the loan has it’s own set of guidelines.
FHA GUIDELINES for Chapter 13
FHA will consider appoving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee’s written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability.
FHA Guidelines for Chapter 7 Bankruptcy
At least two years must have elapsed since the discharge date of the borrower and / or spouse’s Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable job.
Okay – so the Bank can get FHA INSURANCE on the loan if it meets the particulars above, but does that mean you are a good credit risk, and they will actually make you a loan? Well, that could be something entirely different.
It’s important to know that if you don’t have at least a 620 credit score you will probably not be getting a mortgage loan. If you have 12 months of clean credit, and at least THREE tradelines, you might have a 620 score. If you only have 2 open lines of credit, you probably do not have a 620 score, no matter who long you have been “makin’ the payments on the truck on time.” The first thing to do is re-establish credit.
If you have questions about purchasing a home in NC with FHA financing, click here!
Thank you!
I think you might be interested in the article about FHA Loans and the $8000 tax credit.
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Hi – just a brief note to say thanks for this article. Very well-written.