FHA Loan Bankruptcy Waiting Period: How long is it?

Can I buy a house in two years or less with the FHA?

According to Google, around 1,000 queries for “FHA bankruptcy waiting period” are made each month. The rise in bankruptcy filings is mostly attributable to the following five factors:

  • Expenses for Medical Care
  • Job Loss
  • Poor or Excessive Use of Credit
  • Separation or Divorce
  • Unforeseen Expenses (flood, tornadoes, theft or casualty)

FHA Chapter 7 Bankruptcy Waiting Period

Bankruptcy graphicWhen you petition the court for bankruptcy protection under chapter 7, the bankruptcy court eliminates most (if not all) all of your dischargeable obligations.

In a chapter 7 bankruptcy, your debts are discharged, but your property and other assets may be liquidated to reimburse creditors. This sort of bankruptcy is often used to discharge vehicle, credit card, and medical obligations, as well as other minor debts. A Chapter 7 bankruptcy does not absolve you of alimony, unpaid taxes, or child support.

Chapter 7 filers can expect their bankruptcy to show on their credit record for a ten-year period. You may not, however, be required to wait a decade to qualify for a mortgage. Many filers wait just 2-4 years after bankruptcy to acquire a house.

If you filed for Chapter 7 bankruptcy, you may still qualify for an FHA mortgage if at least two years after the discharge date of the bankruptcy. You should know, however, that the lender may supersede the FHA guidelines and require a longer waiting period, typically 3 years.

Along with the FHA minimum two-year requirement, you must also:

  • re-established good credit and,
  • refused to take on further debts

Chapter 7 Bankruptcy With a One-year Waiting Period

A term of less than two years but not fewer than twelve months may be acceptable for an FHA-insured mortgage, provided the borrower:

  • can demonstrate that the bankruptcy occurred as a result of extenuating circumstances beyond his/her control, and
  • has subsequently shown a proven capacity to handle his/her financial affairs responsibly.

Note: The borrower and lender must demonstrate that the circumstances suggest that the conditions that precipitated the bankruptcy are unlikely to occur again.

FHA Chapter 13 Bankruptcy Waiting Period

Distressed couple over their billsChapter 13 bankruptcy creates a three- to five-year repayment plan for the filer's debt. Following that, all dischargeable debts will be discharged by the bankruptcy court. A chapter 13 bankruptcy will appear on the filer's credit record for seven years.

The waiting period necessary before acquiring a home varies depending on how your bankruptcy is managed and whether or not your debt is dismissed or discharged.

A chapter 13 bankruptcy is one in which you agree to make payments on your debts over time rather than having them forgiven. The bankruptcy court will determine the repayment schedule for the debts.

A chapter 13 bankruptcy is often reserved for those who have a consistent income that is adequate to pay off their obligations over time.

According to HUD Handbook 4000.1, if you have filed for chapter 13 bankruptcy, you may still qualify for an FHA mortgage if you apply at least 12 months after the discharge date of the bankruptcy.

The FHA also requires the following:

  • The bankruptcy court grants formal authorization to obtain a new mortgage.
  • The borrower has demonstrated a good payment performance and has made all due payments on time, and

The mandatory waiting period starts ONCE the bankruptcy is dismissed, NOT ONCE it is filed.

Rotating question markFrequently Asked Questions (FAQs)

Q. Can I sell my house while in Chapter 7?
A. Chapter 7 bankruptcy (liquidation of assets) makes it difficult to sell a home. If you want to sell, you first must obtain the court's approval. If the court-appointed trustee wants to sell your home to generate cash for creditors, he also must get permission from the court.

Q. Can I walk away from my house after Chapter 7?
A. If you have not reaffirmed your mortgage, if you stop paying and walk away from the home, the foreclosure will not show up on your credit report. If it does, you have the legal right to dispute that charge and get it removed. If, however, you did reaffirm your mortgage, you are still responsible for the debt. Jun 12, 2020

Q. Can you buy a house after Chapter 7 with a co signer?
A. Can you buy a house after Chapter 7 with a co-signer? Yes, having a co-signer can improve your chances of getting a mortgage after a bankruptcy.

Q. How long does it take to rebuild credit after Chapter 7?
A. Take your time. The amount of time it takes to rebuild your credit after bankruptcy varies by borrower, but it can take from two months to two years for your score to improve. Because of this, it's important to build responsible credit habits and stick to them even after your score has increased. Jun 16, 2021

Conclusion

In conclusion, the waiting period for an FHA loan after a bankruptcy is two years. The process is fairly straightforward, and the benefits of an FHA loan after a bankruptcy can be substantial. If you are considering filing for bankruptcy or are in the process of doing so, it is important to speak with a qualified mortgage professional to see if an FHA loan is right for you.

Credits

O’Neill, Cara. “Will I Lose My Home If I File for Chapter 7 Bankruptcy? | Nolo.” Www.Nolo.Com, www.nolo.com, https://www.nolo.com/legal-encyclopedia/lose-home-file-chapter-7-bankruptcy.html. Accessed 5 May 2022.

“Can a House Be Sold If You Are Going Through Bankruptcy? | Home Guides | SF Gate.” Home Guides | SF Gate, homeguides.sfgate.com, https://homeguides.sfgate.com/can-house-sold-going-through-bankruptcy-34729.html. Accessed 5 May 2022.

Abelmann, Rick. “Walking Away From Your Home After Bankruptcy.” Abelmann Peterson Bankruptcy Attorneys, abelmannlaw.com, 24 Aug. 2015, https://abelmannlaw.com/walking-away-from-your-home-after-bankruptcy/.

“Buying a Home After Bankruptcy: Tips for How to Get There.” American Financing, www.americanfinancing.net, https://www.americanfinancing.net/home-purchase/buying-a-home-after-bankruptcy. Accessed 5 May 2022.

Treece, Kiah. “7 Easy Ways To Rebuild Your Credit After Bankruptcy – Forbes Advisor.” Forbes Advisor, www.forbes.com, 16 June 2021, https://www.forbes.com/advisor/credit-score/rebuilding-credit-after-bankruptcy/.