How Can I Buy a House with FHA Loan After Bankruptcy?
You have likely heard that a bankruptcy will stay on your credit report for seven to 10 years. While it is true, you may actually be able to become a homeowner with the help of an FHA loan. A common question among prospective home buyers is: How long must you wait before you can get an FHA loan after a bankruptcy? The answer depends on the kind of bankruptcy. Getting an FHA loan after bankruptcy requires waiting period and cleaning up your credit. There are two types of bankruptcy filings common for individuals: Chapter 7 and Chapter 13. Let’s take a look at the different kinds.
Chapter 7 Bankruptcy
A chapter 7 bankruptcy is when you discharge your debts. It means to liquidating property, using the proceeds to pay creditors and eliminating all remaining eligible debt. This is the most common kind of bankruptcy for individuals and is usually the best option for people who have so little income that they have no hope of being able to repay their debts. You can get an FHA loan in as little two years after discharge (the court order that releases you from liability for the debts included in the bankruptcy. During those two years, you must have re-established good credit and avoided taking on additional debt.
You may qualify for an FHA loan in as little as 12 months after chapter 7 bankruptcy. But only if you can show that the bankruptcy was caused by extenuating circumstances beyond your control. Those extenuating circumstances might include the death of a breadwinner spouse, a serious illness, getting laid off or a natural disaster that caused you to lose everything. You also need to show documentation that you have since exhibited an ability to manage your financial affairs in a responsible manner.
Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is when you restructure your debt and get on a payment plan. Chapter 13 bankruptcy is reserved for individuals who have a regular source of income and the desire and ability to repay at least some of their debts. In a Chapter 13 bankruptcy, a debtor creates a three or five year repayment plan to pay off as much of his or her unsecured debts as possible. Upon completion of the payment plan, any remaining eligible debts are discharged.
FHA rules allow a lender to consider approving an FHA loan application from a borrower who is still paying on a Chapter 13 Bankruptcy-but only if those payments have been made and verified for a period of at least one year. You will have to provide documentation showing all required payments have been made on time. You will also need get written permission from bankruptcy court that show that you are financially secure enough to take on a new mortgage.
Improving your finances
Regardless of your bankruptcy type, you’ll need to take steps to improve your finances, reestablish your credit and demonstrate that you can manage your finances wisely after declaring bankruptcy and before applying for an FHA loan.
It is all depend on lender
It is important to remember that the FHA does not make loans. They only insure the FHA loans that lenders make. Whether or not you will receive a mortgage depends on whether you are able to find a lender who is willing to give you a loan. Every lender is different. It doesn’t happen all the time, but some lenders might require you to wait longer than the two-year period. Everybody situation is different, so it is important to work with a lender that work best with your situation.
Swee Ng, Realtor and Phoenix East Valley resident specializing in win-win real estate transaction through great communication and fighting for his clients’ best interest. After all, this is more than real estates, this is about your life and your dreams.
If you are looking to buy or sell your home in Phoenix AZ area, we hope you will consider us. Contact us today for complimentary consultation.
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