New FHA Policy for Home Loans After Bankruptcy

New guidelines issued by the Federal Housing Administration make it easier for some to qualify for a home loan after bankruptcy. This policy changes the waiting period from two years after a bankruptcy discharge to twelve months, as long as certain conditions apply.

The general rule for obtaining a federally guaranteed home loan is that a bankruptcy must have been discharged twenty four months prior, and that there must have been some “extenuating circumstances” that caused the bankruptcy. If you simply decided to not pay your debts, the rule is seven years.

Under the new FHA policy, a bankruptcy debtor may qualify for a home loan within twelve months after a bankruptcy discharge, foreclosure, short sale, or deed-in-lieu of foreclosure. The twelve month period runs from either the date of the discharge or the date that the property was legally transferred to the mortgage company, whichever is later. Consequently, if your bankruptcy discharges in November of 2013, but the bank forecloses on the property in January of 2014, the twelve month period runs from January 2014.

Additionally, the bankruptcy filing must be shown to be the result of an “economic event” that caused a six month loss of income of at least 20%. That includes a job loss, major pay reduction, or serious medical condition causing economic loss.

Finally, the debtor must show a history of good credit before the “economic event,” and good credit (or no credit) for the twelve months after the bankruptcy discharge. For those who are unable to meet the new FHA qualifying guidelines, the old two year waiting period still applies.

The full text of the FHA announcement and new policy can be read here.

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