FHA Loan Guidelines After Bankruptcy and Foreclosure

You may now purchase a home 12 months after an economic event such as a foreclosure, short sale, deed-in-lieu of foreclosure, Chapter 7 bankruptcy, Chapter 13 bankruptcy, loan modification, and forbearance agreement. On August 15, 2013 the Federal Housing Administration (FHA) enacted the Back To Work-Extenuating Circumstances Program for those who have experienced these economic events due to unemployment or minimum 20% loss of household income during the recent recession.

The Back To Work-Extenuating Circumstances Program adheres to standard FHA mortgage guidelines. The guidelines for FHA insured loans include at least a 500 credit score, 3.5% down payment, and income verification through federal tax records. This program is available for both first-time and repeat home buyers, and 203K construction loans also qualify. Borrowers without a credit score remain eligible. Other program requirements are listed below:

  • The borrower must have fully recovered from the above economic events. This includes full-time employment which qualifies the applicant to make loan payments.
  • The borrower must have a satisfactory credit score, and credit record free from collections and late payments unrelated to mortgage requirements before the economic event occurred.
  • The borrower must have a satisfactory credit score for the past 12 months. The credit history of applicants must be clear of late payments, collection reports, and unfavorable civil court actions except for actions related to identity theft and medical related payments.
  • The borrower must attend a minimum 1 hour housing meeting with a U. S. Department of Housing & Urban Development (HUD) approved counselor within 30 days of submitting a loan application.

Fannie Mae and Freddie Mac Headquarters

The Federal National Mortgage Association (Fannie Mae) Headquarters at 3900 Wisconsin Avenue, N.W. Washington, D.C. and the Federal Home Loan Mortgage Corporation (Freddie Mac) Headquarters at 8200 Jones Branch Drive McLean, Virginia. Fannie Mae provides insurance for home loans provided by many lenders and banks while Freddie Mac insures home loans by savings and loan institutions. Approximately 25% of FHA home loans are insured by Fannie Mae & Freddie Mac.

Conventional loan approval requires 4 years after the discharge of a Chapter 13 bankruptcy (reorganization), and 2 years after the discharge of Chapter 7 bankruptcy (liquidation). Veterans Administration (VA) loan approval require 1 year of Chapter 13 plan payments with bankruptcy court approval of mortgage qualification. VA loans require a waiting period of 2 years after Chapter 7 bankruptcy is discharged. USDA loans require a 3 year waiting period after the discharge of a Chapter 7 bankruptcy, and 1 year after making Chapter 13 plan payments with bankruptcy court approval.

These insured loan types require lenders to approve the financing of borrowers who they assess to be creditworthy with a reliable source of income. The Back To Work-Extenuating Circumstances Program will close on September 30, 2016. Contact us if you would like information for experienced FHA lenders supporting this program.