Getting FHA Loans After Bankruptcy: A Complete Guide

Declaring bankruptcy can feel like a crushing financial setback when your credit is damaged and debts discharged. Many bankruptcy filers interested in buying a home or refinancing their mortgage assume that a recent bankruptcy will disqualify them from getting approved. This causes countless would-be homebuyers to delay their dreams of homeownership.

However, there is good news – you can get approved for FHA loans even after a recent bankruptcy. FHA loans only require you to wait 12-24 months after a bankruptcy discharge before applying. Compared to conventional mortgages which often make you wait 4 years FHA loans offer bankruptcy filers a huge advantage.

In this complete guide. we will cover everything you need to know about getting approved for FHA loans after bankruptcy including

• How soon you can apply for an FHA loan after Chapter 7 vs Chapter 13 bankruptcy
• Tips for re-establishing your credit after bankruptcy
• Meeting FHA loan requirements after bankruptcy
• Finding the best FHA lenders for borrowers with bankruptcies

Let’s get started!

How Long To Wait For FHA Loans After Bankruptcy

The most important factor in determining your eligibility for FHA financing after bankruptcy is how long it has been since your bankruptcy was discharged. FHA guidelines vary depending on whether you filed Chapter 7 or Chapter 13 bankruptcy.

Waiting Periods for FHA Loans After Chapter 7

For a Chapter 7 bankruptcy discharge, FHA requires a minimum 2-year waiting period from the date of bankruptcy discharge to apply for a new mortgage. However, the waiting period may be shortened to only 12 months if you can prove extenuating circumstances caused your bankruptcy.

Extenuating circumstances include:

• Loss of employment
• Medical expenses not covered by insurance
• Divorce or death of a spouse
• Natural disaster damaging your home

Along with documenting extenuating circumstances, you must also show reestablished credit and the ability to manage your finances responsibly.

Waiting Periods for FHA Loans After Chapter 13

For Chapter 13 bankruptcies, the waiting period to apply for an FHA loan is only 12 months from the date of your bankruptcy discharge.

Additionally, you must have:

• Made all required payments on time under your bankruptcy repayment plan
• Obtained written approval from the bankruptcy court to take on new debt like a mortgage
• Proven the bankruptcy was caused by extenuating circumstances

As you can see, FHA offers more flexibility and shorter waiting periods for borrowers who have filed either type of bankruptcy.

Re-Establishing Your Credit After Bankruptcy

In addition to meeting the minimum waiting period, getting approved for an FHA loan requires re-establishing good credit. Here are some tips for rebuilding your credit profile after bankruptcy:

Pay All Bills On Time – Set up autopay for bills when possible and avoid any late payments. Your payment history makes up 35% of your credit score.

Keep Credit Card Balances Low – Don’t max out credit cards. Keep your utilization below 30% on each card and overall.

Limit New Credit Accounts – Don’t open too many new accounts quickly. This can lower your average account age.

Open a Secured Credit Card – This allows you to rebuild credit history in a responsible way.

Save Cash Reserves – Having 3-6 months of living expenses saved makes you look more financially stable.

Avoid Debt – Don’t take on auto loans or other new debt until your home loan closes.

Check Credit Reports – Dispute any errors on your credit reports to maximize your scores.

Get Credit Education – Take credit counseling classes on budgeting and managing credit.

Following these essential tips in the 12-24 months after your bankruptcy discharge can help you qualify for an FHA loan and get back on the road to homeownership.

FHA Loan Requirements After Bankruptcy

In addition to waiting the required time period and re-establishing good credit, you must also meet all standard FHA loan requirements:

• Credit Score – The minimum FHA credit score requirement is 500-580 depending on your down payment amount. Many lenders want scores of 640+.

• Downpayment – You’ll need at least 3.5% downpayment on an FHA loan, from an acceptable source like savings, gifts, grants.

• Debt-to-Income Ratio – Your total monthly debt payments, including the future mortgage payment, cannot exceed 43-50% of your gross monthly income depending on your credit profile.

• Cash Reserves – Expect to show 1-3 months of mortgage payments saved up in your bank account.

• Home Eligibility – The property must meet FHA property requirements including being owner-occupied, in livable condition with no big repairs needed. Condos and non-warrantable condos often have more restrictions.

Meeting all these requirements demonstrates you are financially ready to take on a mortgage again after your bankruptcy. Having a strong bankruptcy recovery plan is key.

Finding The Best FHA Lenders For Borrowers With Bankruptcy

Not all FHA lenders are created equal when it comes to approving borrowers who have recently filed bankruptcy. Here are some tips for finding an FHA lender who offers the best rates and terms:

• Search for “bankruptcy approval” – Many lenders list this as one of their specialties. They are used to documenting bankruptcy timelines and guiding borrowers through qualification.

• Ask about credit score flexibility – Find out if they can go below the minimum FHA score requirements with extenuating circumstances.

• Inquire about alternative credit options – Some lenders allow use of rent, utility payments, insurance payments to demonstrate creditworthiness.

• Seek out local first-time homebuyer programs – These programs provide credit counseling and downpayment assistance to help bankruptcy filers get approved.

• Compare mortgage rates – Don’t just go with the first lender you talk to. Shop and compare FHA mortgage rates.

• Read online reviews – Research what other customers say about the lender’s ability to get loans after bankruptcy.

Finding the right lender for your unique situation can make your path to post-bankruptcy homeownership much smoother.

Final Tips for Getting FHA Loans After Bankruptcy

Declaring bankruptcy is not the end of the road on the path to homeownership. By following FHA bankruptcy waiting period guidelines, responsibly rebuilding your credit, and selecting the right lender, you can absolutely get approved for an FHA loan even with a recent bankruptcy.

Here are a few final tips as you move forward with achieving your homeownership dreams after bankruptcy:

• Educate yourself on the process – Know the FHA guidelines and timelines inside and out
• Be honest with lenders – Explain your circumstances fully and provide all documentation
• Build savings – Downpayment funds plus reserves boost your approval chances
• Don’t take on new debt – Wait until after closing to apply for car loans or new credit cards
• Get professional credit help – Hire credit counseling services if you need help improving scores
• Be patient – It takes time to rebuild finances after bankruptcy, so don’t get discouraged

Stay positive, follow the steps in this guide, and you will get the keys to your new home before you know it – with an FHA loan after bankruptcy.