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2010-11-09 17:46:00
Q. I just had a bankruptcy...When can I buy again?

I've heard this question a lot so I thought I'd address the answer here.

Here is FHA's take on ch7 BK's and short sales/foreclosures. FHA is the most lenient for underwriting guidelines so this is the best case scenario. Let me know if you have any questions.


408.01b Chapter 7:

A Chapter 7 bankruptcy (liquidation) does not necessarily automatically disqualify a borrower from obtaining an FHA-insured mortgage, if at least 2 years have elapsed since the date of the discharge of the bankruptcy. The lender must identify that the borrower satisfactorily meets FHA credit guidelines and qualifies in all other areas of the 3 C’s of credit underwriting.

During this time, the borrower must:

• have reestablished good credit, or

• chosen not to incur new credit obligations.

An elapsed period of less than two years, but not less than 12 months may be acceptable for an FHA-insured mortgage, if the borrower:

• can show that the bankruptcy was caused by extenuating circumstances beyond his/her control, and

• has since exhibited a documented ability to manage his/her financial affairs in a responsible manner.


: The lender must document that the borrower's current situation indicates that the events that led to the bankruptcy are not likely to recur.

408.01c Foreclosure / Deed in Lieu / Short Sale

A borrower is generally

not eligible for a new FHA-insured mortgage when, during the previous three years if:

• His/her previous principal residence or other real property was foreclosed, or

• He/she has given a deed-in-lieu of foreclosure.

• His/her previous residence was involved in a short sale.


: The lender may grant an exception to the three-year requirement if the foreclosure was the result of documented extenuating circumstances that were beyond the control of the borrower, such as a serious illness or death of a wage earner, and the borrower has re-established good credit since the foreclosure.

Divorce is

not considered an extenuating circumstance.

However, the situation in which a borrower whose loan was current at the time of a divorce in which the ex-spouse received the property and the loan was later foreclosed qualifies as an exception.

Note: The inability to sell the property due to a job transfer or relocation to another area does not qualify as an extenuating circumstance.

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