Federal Housing Authority Loan
An FHA loan is a federally-insured loan. It’s attractive to first-time, cash-strapped home buyers because it offers the ability to put down as little as 3.5% of the purchase price.
Additionally, the requirements are more liberal than conventional loans. You’ll likely qualify with a credit score of:
- 640 and 3.5% down
- 580 if you can afford a higher interest rate, or
- 500 and 10% down.
If you’d like better terms, consider taking steps to improve a credit score of less than 640.
Fha Loan After Bankruptcy Yes You Can
Borrowers that dont qualify for a conventional loan can pursue the option of FHA loans, which are less strict compared to conventional loans. Requiring a lower down-payment and accepting even a bruised credit score, FHA are deemed as easier to qualify for compared to conventional ones.
Borrowers with a past event of Chapter 7 or Chapter 13 bankruptcy will still be able to qualify for an FHA loan if they meet the requirements related to the necessary waiting period and requirements related to credit score and other FHA loan requirements.
Here are the general requirements for borrowers with a past bankruptcy event in their financial history:
Fha Loan Requirements To Meet All Hud Guidelines And Get Automated Approval Per Aus
To get an approve/eligible per AUS on FHA Loans With 500 Credit Scores, borrowers need to meet the minimum agency HUD guidelines stated on the HUD 4000.1 FHA Handbook.
Below is a list of bullet points borrowers must meet to get the best chances of an approve/eligible per automated underwriting system:
- Timely payments in the past 12 months on all monthly payments reporting to credit bureaus
- Outstanding collections and charged-off accounts do not have to be paid off but you cannot have credit disputes on non-medical collections, charged-off accounts, and other derogatory credit tradelines
- Two year waiting period after Chapter 7 Bankruptcy discharged date
- Three year waiting period after the recorded date of foreclosure, deed in lieu of foreclosure, short sale
- Borrowers in an active Chapter 13 Bankruptcy payment plan are eligible to qualify for an FHA loan after making 12 timely payments
- The Chapter 13 Bankruptcy does not need to be discharged
- There is no waiting period after the Chapter 13 Bankruptcy discharged date to qualify for an FHA loan
- If the Chapter 13 Bankruptcy has not been seasoned for 24 months, the file needs to be a manual underwrite
- FHA manual underwriting guidelines apply
- The maximum front-end debt to income ratio cap is 46.9% and the back-end is 56.9% DTI to get an automated approval per AUS
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Check Your Credit Report For Errors
A critical part of rehabilitating your credit score is checking your credit report for inaccuracies. According to the Federal Trade Commission , about 20 percent of all credit reports contain errors, and 5 percent of consumers have errors on their reports that could result in less-favorable loan terms. Errors enter the system through clerical error, incorrect data entry of Social Security numbers or names, incomplete information, inclusion of information about another individual with a similar name, and the application of a payment to the wrong account.
What to Do
Request free copies of your credit reports through AnnualCreditReport.com, the website created by Experian, Equifax and TransUnion, the three largest CRAs. If you find errors, contact the offending CRA or CRAs, and request the change. It’s essential to correct any errors if you hope to finance the purchase of a new home in the future. You will likely be asked to provide documentation to prove there was a bona fide error and to prove that the new information is a valid correction.
Fha Loan Requirements For First
FHA Loans are one of the most popular loan programs in the U.S. FHA Loans are common mortgages for first-time homebuyers, buyers with bad credit, higher debt to income ratio borrowers, and borrowers after bankruptcy or foreclosure. HUD, the parent of FHA, is not a lender. HUD created FHA to insure home loans to private lenders. Lenders get a government guarantee by HUD in the event borrowers default on their FHA Loans.
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Can You Refinance After Bankruptcy
Yes, you can refinance your mortgage after bankruptcy, but having a bankruptcy on your credit report will make it more difficult to qualify.
It also depends on whether you file for Chapter 7 or Chapter 13 bankruptcy and the type of mortgage loan youre looking to refinance. You may have to wait several years before you can start the mortgage refinancing process.
If youre ready to refinance, Credible makes the process easy. You can see personalized prequalified rates from our partner lenders in just a few minutes. We also provide transparency into lender fees that other comparison sites typically dont.
Find out if refinancing is right for you
- Actual rates from multiple lenders In 3 minutes, get actual prequalified rates without impacting your credit score.
- Smart technology We streamline the questions you need to answer and automate the document upload process.
- End-to-end experience Complete the entire origination process from rate comparison up to closing, all on Credible.
The bankruptcy code is complex and can affect your credit history and ability to refinance in other ways, so be sure to speak with a bankruptcy attorney for personal guidance.
Qualifying With Lender With No Overlays
Homebuyers or homeowners who need to qualify for a mortgage with a direct lender with no overlays on government and/or conventional loans can contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at We are available 7 days a week, evenings, weekends, and holidays.
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How Discharge And Dismissal Dates Work
The waiting periods start from the date that the bankruptcy is discharged. Thats the date that your debts are wiped out. For a Chapter 7 filing, your clock starts ticking almost immediately after filing because the discharge typically happens fast.
Note that discharge is different from dismissal. If a judge dismisses your Chapter 7 filing, its as though there was never a bankruptcy. So there is no waiting period. However, youll still have to meet credit scoring and other underwriting guidelines.
For Chapter 13 filings and conforming loans, its different. Chapter 13 payment plans run from three to five years. You file, pay into your plan, and after several years, you get your discharge. Then the clock starts on your waiting period. So if it takes you five years to discharge a Chapter 13, and then you have a two-year waiting period after the discharge, you cant get a loan until seven years after filing.
For Chapter 13 bankruptcy dismissals and conforming loans, your waiting period is four years after dismissal. If youre in a Chapter 13 bankruptcy, government-backed loans allow you to finance a home much sooner. Note that youll need the approval of the Bankruptcy Court.
S To Take While You Wait
Now that we have explained the reasons for a waiting period and the different timelines, letâs shift to what you can focus on in the meantime to make your home-buying dream a reality. There are a number of steps you can take to improve your situation and build good credit immediately following your bankruptcy discharge.
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Can You Speed Up The Process
The waiting period can be reduced if your foreclosure was the result of uncontrollable financial hardship from which you have recovered. This must be provable with means beyond words. This does not include situations like getting caught up in a shopping addiction. These are situations along the lines of a divorce, major health issues, a business failure, or an economic recession.
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Chapter 7 Waiting Periods
A Chapter 7 declaration must have been discharged or dismissed for 2 years prior to application, if a borrower has either reestablished good credit or not incurred new debt. Its possible an FHA loan will be approved after only 1 year since discharge. That occurs if the borrower shows the bankruptcy was caused by extenuating circumstances, is unlikely to reoccur and they have exhibited an ability to manage their finances since the bankruptcy occurred.
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Fha Loans Versus Va Loans: Comparing Mortgage Options
In this article, we will be comparing FHA loans versus VA loans. VA loans by far are the best mortgage loan program in the nation. The U.S. Department of Veterans Affairs is the federal government agency administering the agency mortgage guidelines on VA loans. The role of the Veterans Administration and the U.S. Department of Housing and Urban Development is to insure and partially guarantee banks, credit unions, and mortgage companies in the event borrowers default on VA loans for the VA and FHA loans for HUD.
In this article
What Type Of Mortgage Can You Get After Bankruptcy
Its technically possible to get any type of mortgage loan after a bankruptcy. There are no rules in place that permanently exclude you from getting a certain type of loan because youve gone through a bankruptcy. As long as you meet the waiting period discussed above, youre free to apply. But you can qualify for some types of mortgage loans much easier than others.
An FHA loan could be a great option if you have a bankruptcy on your record. FHA waiting periods are shorter than other types of loans. If you have a Chapter 13 bankruptcy, theres no waiting period at all after a court dismisses or discharges you. FHA loans also have looser requirements compared to other types of government-backed loans.
One of the major benefits of getting an FHA loan after a bankruptcy is its lower credit requirements. Even after a court dismisses or discharges your bankruptcy, it will still negatively influence your credit score. A Chapter 7 bankruptcy will stay on your credit report for 10 years, while a Chapter 13 bankruptcy will stick around for 7.
During this time, your credit score will be much lower than before your bankruptcy. You can buy a home with an FHA loan with a credit score as low as 580 points. You may even qualify for a loan with a score as low as 500 points if you have a down payment of at least 10%. However, at Rocket Mortgage®, the minimum credit score is 580.
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Rebuilding Your Credit Will Help
A large component that speaks to a lender of your dependability is building your credit score back up. It is a good way to tangibly show you are making responsible financial choices. To boost your credit score, pay all current bills on time and maintain low balances on any credit cards. It is a good idea to go over every item in your credit report to ensure it is accurate as many people have things that were reported incorrectly which bring down their score that had nothing to do with them.
Keep Your Credit Card Balances Low
The amount you owe to creditors is the second-largest factor in your FICO score. Accounting for 30 percent of your score, your outstanding debt may prove easier to clean up than your payment history. A large amount of debt can depress your credit score, so whittling away the amount you owe is key to improving your score.
What To Do
First, avoid adding to your outstanding balance. If you’ve recently come out of a bankruptcy, don’t load up on the credit offers you will find stuffing your mailboxes, both virtual and real. Pay off any debt the court orders you to pay, and do not pay discharged debt. If you had a foreclosure or short sale, work on paying down any debt you owe. Avoid the temptation to game the system by rolling debt from one credit card to another.
Second, understand the implications of credit-related decisions before opening, closing, or asking for a boost to your available balance. For example, don’t close any credit card accounts in an attempt to raise your score. This tactic usually backfires because having fewer open accounts can lower your credit score. Recently closed accounts will continue to show up on a credit report, and FICO. may include them in your FICO score calculations. Moreover, the same amount of debt spread over fewer accounts means that you are using more of your remaining line of credit and that’s a red flag to lenders.
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The Role Of Hud On Fha Loans
HUD will insure and partially cover the loss by the lender in the event a borrower defaults and forecloses on their FHA loan. Due to this government guarantee, lenders are able to offer home loans to buyers with lower credit scores, bad credit, and high DTI with a 3.5% down payment, lenient mortgage requirements, and competitive mortgage rates. Borrowers can qualify for FHA Loans With 500 Credit Scores at Gustan Cho Associates if they meet the minimum mortgage guidelines of the U.S. Department of Housing and Urban Development .
Learn How Long It Takes To Get An Fha Va Usda Or Conventional Mortgage Loan After Chapter 7 Or Chapter 13 Bankruptcy
Updated By Cara O’Neill, Attorney
Filing for bankruptcy doesn’t have to put a damper on your home buying dreamat least not for long. Lenders have eased requirements, opening the door for bankruptcy filers to get back into a home sooner than in the past.
Currently, the average waiting period is two years. In this article, you’ll learn about common mortgage loans and the respective eligibility requirements for bankruptcy filers.
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Fha And Va Loan Manual Underwriting Guidelines
Mortgage borrowers in current active Chapter 13 repayment and/or if the discharged date has not been seasoned for two years will not get an approve/eligible per automated underwriting system. The AUS will render a refer/eligible. Refer/eligible AUS Findings can be done with manual underwriting. Borrowers can qualify with 580 credit scores with manual underwriting. Again, any borrower with under 580 credit scores down to 500 can qualify with a 10% down payment. To qualify for FHA Loans with a 3.5% down payment, credit scores need to be 580.
Can You Refinance Your Mortgage After Bankruptcy
Its possible to qualify for a mortgage refinance after bankruptcy and improve your financial situation. However, the lending standards are different for Chapter 7 and Chapter 13 bankruptcy.
Edited byChris JenningsUpdated August 31, 2021
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
Personal bankruptcy can help you recover from financial challenges but the process can impact your creditworthiness for several years.
For example, you may wish to refinance your mortgage to improve your repayment options. While its not impossible to refinance after bankruptcy, it can be harder to qualify.
Here is an overview of what you can expect to refinance your home loan after bankruptcy:
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Fha Chapter 13 Bankruptcy
Unlike a Chapter 7, a Chapter 13 bankruptcy requires several years of payments prior to discharging debts. Usually, 3 5 years is the typical chapter 13 payment term. Additionally, this type of bankruptcy also creates a major hurdle in establishing many types of credit. This includes mortgage loans. But, getting an FHA loan after bankruptcy is possible quicker than other home loan types. Its even possible to get an FHA loan while in a Chapter 13 bankruptcy!
How To Apply For A Mortgage After Bankruptcy
The experts recommend working hard to bounce back from bankruptcy. That means improving and monitoring your credit before attempting to apply for a loan post-bankruptcy.
To apply for a mortgage after bankruptcy:
1. Check your three creditreports for free at AnnualCreditReport.com, disputing and resolving any errors you spot, and following credit-use best practices.
Make sure all debts that should be marked as included in your bankruptcy are reporting with zero balances on your credit reports, Morgan cautions.
Additionally, focus on making payments on time and as fully as possible. If youre struggling to rebuild your credit but are getting new credit applications declined, consider opening a secured credit card, which is generally easier to qualify for, Tayne says.
2. Avoid applying for and taking on too much new debt, and refrain from closing accounts, which can also lower your credit score because it can affect the length of your credit history and credit utilization.
3. If at all possible, look to save. Remember that the larger your down payment saved, the more favorable your interest rate will be.
4. Gather and organize all your bankruptcy discharge and schedule documents, recent pay stubs, two years of tax returns and other paperwork that lenders will want to see proof of.
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Fha Chapter 13 Dismissal Guidelines
The Federal Housing Administration insures mortgages for borrowers with low and moderate incomes as well as borrowers with credit challenges. FHA loans differ from the strict underwriting guidelines of conventional loans, that is, non-government guaranteed loans. Borrowers with prior bankruptcy may still qualify for an FHA loan if they have followed through with the court’s terms and conditions. They may even qualify after a Chapter 13 dismissal under certain circumstances.