Bankruptcy and buying a home

Bankruptcy has certainly been the last choice for many Americans. The question has been asked of me twice in the last week, so I thought perhaps it would be a good topic for my next blog.

For an individual, there are two types of bankruptcy, Chapter 7 and Chapter 13. In a Chapter 7, all of your debt is wiped out when the bankruptcy is discharged. In a Chapter 13, you will be making payment to the bankruptcy court for the trustee to repay your creditors.

In order to qualify for an FHA mortgage, you must wait 2 years from the discharge date if you have filed a Chapter 7 Bankruptcy. The borrower must have re-established credit, have a qualifying credit score and have no derogatory credit since the date of the discharge.

If you are 12 months into a Chapter 13 bankruptcy, with bankruptcy trustee approval, you can qualify for an FHA mortgage. The borrower must have re-established credit, have a qualifying credit score and have no derogatory credit since the date of the bankruptcy filing.

It should be noted, that other compensating factors will be evaluated in the underwriting process, such as length of time on the job, rental history, down payment from own funds, reserve funds after closing. Debt to housing and total debt to income ratios will be strictly enforced.

If the buyer has been a credit counseling program, the same rules apply as the Chapter 13 bankruptcy.

Please note, I am not giving legal advice, merely providing information from a mortgage underwriting process. For more specifics of your situation, it is recommended that you speak with a Banktuptcy Attorney.