FHA Bankruptcy Waiting Period And Mortgage Guidelines

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FHA Bankruptcy Waiting Period And Mortgage Guidelines

This BLOG On FHA Bankruptcy Waiting Period And Mortgage Guidelines Was UPDATED On October 13th, 2018

FHA Bankruptcy Waiting Period Explained

Home buyers can now qualify for a FHA Loan after Bankruptcy.

There are two types of bankruptcies consumers file:

  • A Chapter 7 Bankruptcy is also known as total liquidation bankruptcy
  • Chapter 7 is recommended for consumers who have a lot of unsecured debt such as credit card debts and installment loan debt with little to no assets and little to no income
  • Petitioners do not have to be employed to file Chapter 7 Bankruptcy
  • However, if you have a lot of assets of value and you want to protect those assets, a Chapter 13 Bankruptcy may be better for petitioners

Qualifying For FHA Loans During And After Chapter 13 Bankruptcy

However, petitioners do need a job in order to qualify for a Chapter 13 Bankruptcy:

  • The way a Chapter 13 Bankruptcy works is petitioners are asking the U.S. Bankruptcy Courts for help in giving them time to pay their debts to creditors
  • Once consumers file for a Chapter 13 Bankruptcy, a United States Bankruptcy Courts will assign a Chapter 13 Bankruptcy Trustee
  • The Chapter 13 Bankruptcy Trustee is normally a private lawyer who is contracted with the U.S. Bankruptcy Courts
  • Trustees will be the person who will oversee Chapter 13 Bankruptcy and arrange the repayment arrangements to creditors
  • A portion of monthly earnings will be allocated to pay the list of creditors
  • A repayment plan is drafted by the Trustee of Chapter 13 Bankruptcy
  • The repayment plan to creditors is normally for a five year period
  • After that period is over, the remaining balance of all debts is discharged
  • Discharged means petitioner will no longer be responsible for those debts any more
  • There is a FHA Bankruptcy Waiting Period to qualify for a FHA Loan

FHA Bankruptcy Waiting Period And Qualifying After Chapter 7 Bankruptcy

Home buyers can qualify for a FHA Loan after a Chapter 7 Bankruptcy.

  • The FHA Bankruptcy Waiting Period after a Chapter 7 Bankruptcy is two years from the discharged date of a Chapter 7 Bankruptcy
  • Lenders do not want to see any late payments after a Chapter 7 Bankruptcy
  • Lenders expect borrowers to have re-established credit after Chapter 7 Bankruptcy
  • Many consumers who just went through a Chapter 7 Bankruptcy want to stay as far away from credit cards as possible
  • However, this is not a good idea
  • Once you filed a Chapter 7 Bankruptcy, credit scores will plummet over 100 plus FICO points
  • It will be next to impossible to get unsecured credit
  • However, get 3 to 5 secured credit cards as soon as you have Chapter 7 Bankruptcy discharged.

Secured Credit Cards To Re-Establish Credit After Bankruptcy

Secured credit cards is the fastest and easiest way of re-establishing your credit and boosting your credit scores.

  • The amount of credit limit is extremely important
  • Always get a secured credit card with at least a $500 credit limit and not any lower than that
  • For maximum power, try to get a $1,000 credit limit secured credit card
  • Getting three secured credit cards with credit limits of $1,000 each will definitely expedite in boosting consumer credit scores and you will be on your way to great credit
  • I have seen countless of consumers who gotten three $1,000 credit limit secured credit cards after a Chapter 7 Bankruptcy discharged date
  • By carefully using credit cards and having low balances, they had their credit scores north of 700 FICO in just one year
  • Again, getting secured credit cards is the fastest and easiest way of re-establishing credit after bankruptcy and/or housing event

Developing Strong Relationship With Secured Credit Card Companies

Once consumers develop a relationship with secured credit card companies, credit card companies will gradually give consumers a credit limit increase:

  • Credit limit increase will be given without additional deposits
  • Many times, the secured credit card company will return deposit back to consumer
  • The secured credit card will become an unsecured credit card
  • Do not apply for any unsecured credit cards until credit scores are over 700 FICO
  • Applicants will not get approved for unsecured credit cards unless they have at least a 700 credit scores
  • Every time you apply for credit, creditors will do a credit pull on credit and those are hard inquiries
  • Each hard inquiry will drop your credit scores by at least 2 to 5 FICO points
  • Hard pull credit inquiries is not viewed favorably by lenders
  • Will definitely drop credit scores.

Although we are covering FHA Bankruptcy Waiting Period on this blog, I like to mention that there is a four year waiting period to qualify for a Conventional Loan after a Chapter 7 Bankruptcy per Fannie Mae and Freddie Mac Guidelines. Again, all lenders want to see no late payments after Chapter 7 Bankruptcy and re-established credit.

FHA Bankruptcy Waiting Period After Chapter 13 Bankruptcy

Home buyers can qualify for a FHA Loan with a Chapter 13 Bankruptcy.

  • Those in a Chapter 13 Bankruptcy repayment plan can qualify for a FHA Loan one year into the Chapter 13 Bankruptcy with the approval of Chapter 13 Trustee
  • Lenders want to see at least 12 months canceled checks to all of creditors
  • Every creditor needs to have been paid on time for the past 12 months
  • Verification Of Rent is mandatory on all manual underwriting FHA Loans
  • All FHA Loans After Chapter 13 Bankruptcy are manual underwrites until the Chapter 13 Bankruptcy discharge has been seasoned for at least two years

No Waiting Period After Chapter 13 Discharged Date

HUD does not have a waiting period to qualify for a FHA Loan after a Chapter 13 Bankruptcy discharged date.

  • However, there are many lenders who will have overlays on FHA Loans after a Chapter 13 Bankruptcy discharged date
  • Most lenders will have overlays on waiting period after discharged date like a one or two year waiting period
  • This holds true even though HUD does not require a waiting period after a Chapter 13 Bankruptcy discharged date
  • Home buyers with a recent Chapter 13 Bankruptcy discharge and are told they need to wait one year or two years after Chapter 13 Bankruptcy discharged date, please contact us
  • We can be reached at 262-716-8151 or text us for faster response
  • Or email us at gcho@gustancho.com
  • Gustan Cho Associates Mortgage Group has no lender overlays
  • We do not require a waiting period after a Chapter 13 Bankruptcy discharged date

With Conventional Loans, Fannie Mae and Freddie Mac requires a two year mandatory waiting period after a Chapter 13 Bankruptcy discharged date to qualify for a Conventional Loan. Again, lenders do not want to see any late payments during the Chapter 13 Bankruptcy repayment period and after the Chapter 13 Bankruptcy discharge. Lenders also want to see re-established credit.

FHA Bankruptcy Waiting Period On Mortgage Part Of Bankruptcy

If you had a mortgage part of bankruptcythere is a three year waiting period from the date your name was off the deed of the property:

  • This holds true even though the mortgage was included in Chapter 7 Bankruptcy to qualify for a FHA Loan
  • The three year waiting period does not begin until the date of the sheriff’s sale of the property where the mortgage was included in Chapter 7 Bankruptcy
  • This holds true even though the mortgage was included in bankruptcy and discharged

This is not the case with Conventional Loans. With Conventional Loans, borrowers with mortgage part of Chapter 7 Bankruptcy, there is a four year waiting period from the discharged date of Chapter 7 Bankruptcy. This holds true even though the foreclosure and/or other housing event was not recorded until a much later date. The four year waiting period starts from the discharged date of Chapter 7 Bankruptcy and not the recorded date of housing event.

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