Home Loans After Bankruptcy: What You Need to Know
November 8, 2021
Some house hunters have experienced what some term a “negative credit event” such as a bankruptcy. Many assume that a new home loan is not possible after a bankruptcy filing, but the truth is a lot more borrower-friendly than that.
If you are considering a new home after a Chapter 7 or Chapter 13 bankruptcy has been discharged, you should know the rules that apply in such cases. Knowing them ahead of time will definitely help when you are ready to explore your options again. It’s never a good idea to assume you will be denied a loan--always let the lender decide instead.
For some, the idea that you can own a home again after bankruptcy sounds like a dream but it is attainable under the right circumstances. But sometimes a borrower has to get out of their own way to make the loan go forward.
One good example? The prevailing myth that all who have experienced bankruptcy must wait seven years before they can apply for a new home loan. FHA loan rules in HUD 4000.1 say that is not necessary for an FHA mortgage as long as certain conditions are met.
What do you need to know about applying for an FHA mortgage with a Chapter 7 or Chapter 13 in your past?
One of the most important details you will need to pay attention to is the date your Chapter 7 or Chapter 13 bankruptcy was discharged. Keep in mind that FHA loan rules require a minimum length of time to have passed since that date before the lender can consider you.
FHA home loans may be possible in such cases after the bankruptcy has been discharged. Some confuse the filing date with the discharge date--the date the bankruptcy was filed has nothing to do with this process.
Why is the discharge date important? The mandatory waiting time, also known as a seasoning period, you must wait out before applying for a new mortgage again starts on the discharge date. You may be required to wait a year, two years, or more depending on the individual details involved in your case.
Lender requirements and state law will also be factors where applicable. And when you are ready to apply for a new home loan your lender may require additional documents from you--FHA loan rules say that your lender may require additional information about the bankruptcy specifically.
In these cases, your lender is looking for an indication that those circumstances will not repeat themselves with the new mortgage, that the situation was due to things beyond your control. etc.
Remember, not all participating lenders have the same standards--it pays to shop around for a home loan lender who can work with your needs.
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RELATED VIDEOS:
The ARM is an FHA Adjustable Rate Mortgage
Understanding APR
A Few Words About Bankruptcy
If you are considering a new home after a Chapter 7 or Chapter 13 bankruptcy has been discharged, you should know the rules that apply in such cases. Knowing them ahead of time will definitely help when you are ready to explore your options again. It’s never a good idea to assume you will be denied a loan--always let the lender decide instead.
For some, the idea that you can own a home again after bankruptcy sounds like a dream but it is attainable under the right circumstances. But sometimes a borrower has to get out of their own way to make the loan go forward.
One good example? The prevailing myth that all who have experienced bankruptcy must wait seven years before they can apply for a new home loan. FHA loan rules in HUD 4000.1 say that is not necessary for an FHA mortgage as long as certain conditions are met.
What do you need to know about applying for an FHA mortgage with a Chapter 7 or Chapter 13 in your past?
One of the most important details you will need to pay attention to is the date your Chapter 7 or Chapter 13 bankruptcy was discharged. Keep in mind that FHA loan rules require a minimum length of time to have passed since that date before the lender can consider you.
FHA home loans may be possible in such cases after the bankruptcy has been discharged. Some confuse the filing date with the discharge date--the date the bankruptcy was filed has nothing to do with this process.
Why is the discharge date important? The mandatory waiting time, also known as a seasoning period, you must wait out before applying for a new mortgage again starts on the discharge date. You may be required to wait a year, two years, or more depending on the individual details involved in your case.
Lender requirements and state law will also be factors where applicable. And when you are ready to apply for a new home loan your lender may require additional documents from you--FHA loan rules say that your lender may require additional information about the bankruptcy specifically.
In these cases, your lender is looking for an indication that those circumstances will not repeat themselves with the new mortgage, that the situation was due to things beyond your control. etc.
Remember, not all participating lenders have the same standards--it pays to shop around for a home loan lender who can work with your needs.
------------------------------
RELATED VIDEOS:
The ARM is an FHA Adjustable Rate Mortgage
Understanding APR
A Few Words About Bankruptcy
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