What Are the FHA Loan Rules for Buying a House After Bankruptcy?


Quick Answer

FHA rules stipulate that a borrower must wait two years after a Chapter 7 bankruptcy before getting another home loan, but the FHA Back to Work – Extenuating Circumstances Program allows some borrowers to receive loans one year after bankruptcy, reports Nolo. To qualify, borrowers must prove financial stability.

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Full Answer

Although previously the only exceptions to FHA two-year wait rules for borrowers after bankruptcy were extreme circumstances such as medical emergencies or the death of a spouse, the FHA has changed its mortgage rules for those who experience one-time hardship due to recession, according to Nolo. The Back to Work – Extenuation Circumstances Program is effective from Aug. 15, 2013 to Sept. 30, 2016. The FHA considers borrowers who go through bankruptcy caused by an economic event for home loans after one year if the borrowers prove full financial recovery and undergo counseling to help them understand their loan obligations, draw up household budgets, avoid scams and prepare for possible future economic changes, states the FHA.

To be eligible for the Back to Work Program, borrowers must prove that they are employed and have the ability to handle loan payments, reports Nolo. They must show that their credit score was satisfactory before the economic event and for the 12 months since the bankruptcy. The counseling session, which the potential borrower can have in person or via the Internet or telephone, must take place from 30 days to six months before the loan application submission.

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