FHA Loan after Bankruptcy & Foreclosure

Real Estate Agent with Naperville Glen Ellyn Lisle Plainfield Wheaton Illinois

                       FHA  and  BANKRUPTCY



Yes, FHA is available 2 years after Chapter 7 discharge  ( Bankruptcy) EXCEPT that if there is a foreclosure, the rule is 3 years after the foreclosure is complete - meaning generally 3 years from the date of transfer of the deed to the next owner (could be a buyer or the bank if they hold the property).  So people with a foreclosure face a longer wait even if their credit has been reestablished.


I believe the 3 year rule was put in place to discourage "strategic defaults", those are where the homeowner decides it makes business sense to walk away from a property that is underwater, subject to a crushing interest rate adjustment, etc.

Recently, one of my clients were initially given the ok to purchase a home  as they were out of bankruptcy for 2 years, credit was great and they had a good paying job. When the paperwork was filled out they had rolled their "foreclosure" into the banruptcy agreement and did not realize that it would still appear on their records.  So when they asked if they ever had a foreclosure, they answered        "NO" and it was initally missed by mortgage broker. THEY THOUGHT IT WAS "NO" as they were told by their bankruptcy lawyer it was part of the bankruptcy package.  They were told to do this as they were moving out of State and the Real Estate market was slow.

Remember..... If it doesnt sound or feel right, take a second look.  Get another opinion.

Can imagine how excited the couple was to be able to now look for a home. This lasted about a week until it appeared to theie new ender that this bankruptcy included a foreclosure. They could not now proceed to look at homes until this was at least 3 years out.

Most would agree that 3 years is short time to qualify for a loan and they should feel lucky to not have to wait 7 years or more. 

When filling for Bankruptcy, Short Sale or Foreclosure,  is so important that you know exactly what you are getting into.  So often people are not educated and do not realize the future impact.  Before making any decisions make sure you do your homework.


                                     KNOWLEDGE IS POWER

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                Tamara Schuster,Broker

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Comments (36)

Sajy Mathew
Coldwell Banker Residential Brokerage - Lancaster, PA
Making your real estate dreams become a reality!

I have had a few clients buy after a bankruptcy.  I had a VA that bought 3 years later and got a 3.25% rate.  I was suprised he got such a good rate.

Feb 22, 2013 12:21 AM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Tamara: Good thoughts. Thank you. I have a client who is looking right now as she served her sentence. I think the housing market will uptick over the next few years as those borrowers who walked away, etc. will be able to qualify again. Thanks again!

Feb 22, 2013 02:40 AM
Phil Leng
Retired - Kirkland, WA
Phil Leng - Retired

That’s great news for many, Tamara.  Thanks for the update!

Regards and respect,
jl4  Phil Leng

Feb 22, 2013 03:08 AM
Paul Silver
Tiverton, RI
Rhode Island full service real estate firm

We are having a similar issue with a buyer now, first time buyer, slightly low credit scores after a bankruptcy that relates to medical issue from the job... we were going along great until the committment letter stage... then BLEWEY... all done, denied... workign to get this done with another lender now... we shall see...

Feb 22, 2013 10:22 PM
Ridhi Raheja
Movement Mortgage (Illinois) - Naperville, IL
FHA, 203k, VA, Jumbo, PreApproval, Jumbo Home Loan
Tamara , excellent post . You are so right , lots of lenders will miss the foreclosure as it does not appear on the credit report when you make it a part of bankruptcy . It will come up as part of MERS
Feb 22, 2013 10:25 PM
Rodney Mason
Guaranteed Rate NMLS# 2611 - Atlanta, GA
VP of Mortgage Lending - AL, FL, GA, SC, & TN
Many people do get caught on the foreclosure part. I had one borrower last year where his BK was over 3 years old and the bank still had not foreclosed yet even though he had not made a mortgage payment in over 3 years. For some people, it will be much longer than 3 years from the BK.
Feb 22, 2013 10:38 PM
Annett T. Block
NextHome Connect Realty - Fort Lauderdale, FL
Your NextHome in Fort Lauderdale Beach

We all educate our costumer before the agree into a short sale. I still think a short sale is a better option in stead of Foreclosure, Deed in Lieu of Foreclosure or even Bankruptcy. 

Many home seller know they can buy a home after 3 years, but not many know the have options instead of Foreclosure. Figure that out!?

Feb 23, 2013 12:25 AM
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Good information about FHA and foreclosure, thanks.

Feb 23, 2013 12:59 AM
Hella Mitschke Rothwell
(831) 626-4000 - Honolulu, HI
Hawaii & California Real Estate Broker
Thank you. I will forward this information to a client who will benefit from it.
Feb 23, 2013 01:22 AM
Paul Durry
National Mortgage Field Services - Lawton, OK
Former Broker Associate, CDPE, CIAS, CHMS

Thank you Tamara for such an enlightening article!!

Feb 23, 2013 01:59 AM
Ron Aguilar
Continental Mortgage - Saint George, UT
Mortgage & Real Estate Advisor since 1995

As a Loan Officer, during my conversations most people are unaware of the wait period and 

expectations. There is a lot of business with these people if you get them early with proper guidance


Feb 23, 2013 02:11 AM
Ben Yost - 303-587-4297
First Time Home Buyer, Mortgage Rates, Pre-Approval - Denver, CO
FHA, VA, Conventional - Mortgage Loans in De

A BK Lawyer recently told me that they almost always include the home in the BK now, because there ia a ton less liability to them, in case the client actually goes into foreclosure later on.

So I would count on 3 years instead of 2 as the standard- if they had a home during the BK.

Good Post!



Feb 23, 2013 02:13 AM
Jana Holmstrup
Jana Holmstrup - CCO - Kings Mortgage Services, Inc. - Visalia, CA

Knowledge is Power - Amen!  This recently happened to our god-daughter.  They thought the home was included in the BK but found the attorney never had them complete the Deed-in-Lieu.  The Lender never got around to foreclosing until several months after the BK - that date is now where the clock starts ticking.

Feb 23, 2013 03:00 AM
Travis "the SOLD man" Parker; Broker/Owner
Travis Realty - Enterprise, AL
email: Travis@theSOLDman.me / cell: 334-494-7846

Good info on more of the mis-information concerning the "penalties" of bankruptcy. THANK YOU!

Feb 23, 2013 03:47 AM
Tom Esposito
Alpharetta Home Solutions - Alpharetta, GA

Good info.  In this day and age many buyers have either a bk or foreclosure.  Thanks for sharing.

Feb 23, 2013 06:55 AM
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team
Hi Tamara, we agree the 3 year rule discourages strategic default.
Feb 23, 2013 10:57 PM
Paddy Deighan MBA JD PhD
federalfinanciallawgroup.com - Vail, CO
Paddy Deighan J.D. Ph.D

the best tactic may be to try and update the credit report since it can be argued that the hforeclosure was part of the BK..this happens pretty frequently

Feb 24, 2013 10:02 AM
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

You know BK and Foreclosure used to be a Scarlet Letter.  Now they are just a way of life.  

Feb 25, 2013 01:15 AM
Terri Club
Allentown, AZ

I had a client who wanted to buy a home in Arizona, but he had a foreclosure.  After researching the web I found a loan program at www.cfsflex.com, they allow a mortgage after a foreclosure.  There is no waiting period.  Good to see lending options coming back.

Apr 21, 2013 02:20 AM
Wayne B. Pruner
Oregon First - Tigard, OR
Tigard Oregon Homes for Sale, Realtor, GRI

A lot of people lost their homes, through no fault of their own, that wanted to keep. The are many decent people in this pool that need a second chance. 

Dec 05, 2013 11:53 AM