If you have gone through a foreclosure, bankruptcy or short sale, you can still qualify for an FHA mortgage loan. Qualified borrowers can obtain a loan in as soon as one year from the discharge date of their bankruptcy or foreclosure. Read further to learn about FHA loans and qualifications.
The Federal Housing Administration (FHA) is a branch of the US Department of Housing and Urban Development (HUD). The FHA gives lenders more confidence to loan to higher risk borrowers who couldn’t otherwise qualify for a home loan. Many times, those who receive FHA loans are first-time buyers with low to moderate income.
Even though bankruptcy may be common these days, those who have filed for bankruptcy in the past may have additional challenges getting a loan because of it. No matter the reasons, lenders may assume it happened because of laziness or irresponsibility. This stigma leaves many of those who have filed for bankruptcy in a tough spot. The good news is that there is still hope of recovering from a bankruptcy and obtaining a new loan in less time than you may think. There are certain cases where a lender may qualify a borrower to receive an FHA home loan despite their bankruptcy.
After Chapter 13 bankruptcy, the court will order you to repay your debts. This is not as harmful to your credit as a Chapter 7, as long as you stay current on all your payments. Since you still have a record of the debts you owe after you filed for Chapter 13 bankruptcy, the FHA only needs one year after the date you started to make payments to the court. Finally, you will need a written affidavit from the court allowing you to have a new mortgage.
Chapter 7 bankruptcies can erase all of your debt, but at a price. Your credit score will drop significantly, and you will have a tough time getting credit for a period of time after. The FHA will ensure mortgages for borrowers two years after the discharge of their Chapter 7 bankruptcy. You must have also re-established good credit in those two years, having no late payments or collections.
There are some exceptions for the two year waiting period. If you had to file bankruptcy because of a serious illness, natural disaster, or death of a spouse, the FHA will allow you to qualify in as little as one year. To be considered for this, you must have documents proving the extenuating circumstances that affected your ability to pay. As with the two year period of ineligibility, you will have to demonstrate that you will be able to pay back a loan before you are approved.
The FHA requires borrowers to wait three years after foreclosure to be eligible for an FHA loan. If you have experienced foreclosure do to extenuating circumstances such as the death of a spouse or illness, you may be able to qualify for a new FHA loan in as little as one year. Qualified borrowers need to prove that they lost 20% or more of their income for six months to receive this exception.
Those who can prove that their loss of income was due to acceptable reasons will also need to show good credit history for the previous two years before applying. In addition to this, they must undergo housing counseling from a HUD-approved agency.
A short sale is when a home is sold for less than the amount than the current owner owes the mortgage lender. Short sales can be great for buyers and help sellers avoid experiencing foreclosure. If you are a former homeowner who has a short sale on your record, the FHA will require you to wait three years before you are able to apply for a new FHA loan. As with bankruptcies and foreclosures, the borrower will also need to have shown good credit since then. If there are extenuating circumstances that were the cause of the short sale, the borrower may qualify for an FHA loan in as little as one year.