December 11, 2019

FHA Mortgages & Bankruptcy: You May Only Have to Wait One Year After Bankruptcy to Qualify

Conventionally, it took two years, minimum, to obtain an FHA mortgage loan after filing bankruptcy, provided all required criteria were met.  The FHA (Federal Housing Administration, part of the U.S. Department of Housing and Urban Development) recently changed its guidelines to allow FHA mortgage loans to individuals only 1-year outside of bankruptcy.  This post discusses this program and how it may apply to consumers who recently filed bankruptcy.

FHA Mortgage Loans are government-backed mortgage loans, whereby the government insures lenders against borrower-defaults.  Often, borrowers pay a higher mortgage payment as a result of this insurance.  Should the borrower default on the mortgage, the mortgage lender may be made whole by the government.  Under this program, home mortgages are more-readily given to borrowers who are considered higher-risk, such as first-time home buyers, or borrowers who have a bankruptcy or a foreclosure in their past.

Traditionally, an individual would be eligible for an FHA Mortgage 2 years outside of bankruptcy.  However, the FHA has changed this 2 year waiting period to a 1 year waiting period, under certain circumstances.  This program is known as the FHA’s “Back to Work – Extenuating Circumstances” Program. To be eligible for this program a borrower must show:

1. That the borrower has experienced an “Economic Event,” which is any event beyond the borrower’s control that results in a 20% or greater reduction in the borrower’s household income for a minimum of 6-months due to loss of employment, income, or both;

2. That certain negative credit ratings resulted from this loss of household income or employment;

3.  That the borrower has made a full economic recovery; and

4. That the borrower has completed housing counseling

The FHA’s “Back to Work – Extenuating Circumstances” Program provides a vehicle whereby a loan may be guaranteed by the FHA, but the individual lender must still approve the loan in the first place.

If you are contemplating bankruptcy and are concerned about a future home purchase, please call today to schedule your free in-office bankruptcy consultation.


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