Over the past five years, many of my bankruptcy clients have surrendered underwater primary residences to their lenders instead of modifying their mortgages. In a majority of the cases, the numbers simply did not make any sense financially – even if they tried to keep the property, they would never be able to build any equity within a reasonable time frame.
The single most asked question in these cases has been “Will I ever be able to buy another home?” The answer is YES!
After the issuance of a discharge in Chapter 7 bankruptcy, an FHA applicant must wait out the FHA’s minimum “seasoning” period. At the time of this writing, that period is two years plus any additional amount required by the new lender. Some banks will require that a borrower wait a total of three years before applying for a new home loan. Other lenders may be willing to work with qualified borrowers after the FHA two-year minimum for Chapter 7, but it is important to note that the required waiting period begins from the time the bankruptcy is discharged–NOT the time the bankruptcy is filed.
Here is some additional facts about waiting periods and other requirements for both Chapter 13 and Chapter 7 bankruptcy:
Chapter 13 Bankruptcy Waiting Periods
FHA rules allow a lender to consider approving an FHA loan application from a borrower who is still paying on a Chapter 13 Bankruptcy-but only if those payments have been made and verified for a period of at least one year. Please note that this is not automatic. Since there is a pending bankruptcy filing, approval of the transaction must be provided by the Chapter 13 Trustee assigned to the case, or in the alternative, the Bankruptcy Courty. Additionally, the borrower must write a detailed explanation of the reason their filed for bankruptcy and submit it with the loan application. The borrower must have a satisfactory employment history and other financial qualifications.
Chapter 7 Bankruptcy Waiting Periods
As mentioned above, all borrowers must wait least two years after the discharge date of a Chapter 7 Bankruptcy. The discharge date should not be confused with the date bankruptcy was filed. As with Chapter 13 bankruptcy, FHA regulations demand a full explanation to be submitted with the FHA home loan application. To get a new FHA insured mortgage loan after Chapter 7, the borrower must qualify financially, have established a history of good credit post bankruptcy, and meet the other usual and customary FHA requirements.