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Using an FHA Mortgage to Buy a Home After Bankruptcy

When debts cannot be paid due to unfortunate circumstances that occur, people often turn to bankruptcy. It is not unusual that at some point after this occurs, consumers are once again in the position to comfortably own a home. Obtaining a mortgage can become difficult which is why using an FHA mortgage to buy a home after bankruptcy is probably the best choice. While bankruptcy will not disqualify a borrower from obtaining an FHA mortgage, there are guidelines that must be followed in order to receive approval. There are two types of bankruptcy that need to be considered, Chapter 7 and Chapter 13. Chapter 7 Bankruptcy is a full liquidation of a debtor's property in order to pay off debts. While this form of bankruptcy gives a person a fresh start, it will remain on a person's credit report for ten years, although they may obtain an FHA mortgage after two years. FHA guidelines state that with Chapter 7 bankruptcy the borrower must have re-established good credit or chosen not to take on any new credit obligations. When trying to obtain an FHA mortgage before a two year period, but not less than 12 months, the borrower must also show that the bankruptcy was caused by extreme circumstances at the time and can now manage their finances in a responsible manner. The lender must be able to show that the bankruptcy is not likely to happen again. Chapter 13 bankruptcy allows people to keep their assets while a reorganization plan is created in order to better handle the debt in question. Debt is usually repaid within a 3 to 5 year period. According to FHA guidelines, with a Chapter 13 bankruptcy the lender must document that at least one full year of satisfactory and on time payments has passed. The borrower must have written permission to enter into a mortgage transaction from the bankruptcy court. The documentation must also show that a minimum of two years have passed since the discharge of the Chapter 13 bankruptcy. When using FHA to buy a home after bankruptcy, borrowers should be prepared by having their bankruptcy and discharge documents ready and available for the lender. Since many of these debts continue to appear on credit reports after a discharge, the lender will need to update and correct the credit report prior to mortgage approval. The process of obtaining an FHA mortgage under these circumstances is not stressful and should not keep anyone from purchasing a home. FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders’ rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard .07 to 1% point origination fee.

 
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FHA Mortgage 101

  • Conventional vs. FHA mortgage, the difference
  • Conventional vs. FHA mortgage, the difference
  • Conventional vs. FHA mortgage, the difference
  • Conventional vs. FHA mortgage, the difference
  • Conventional vs. FHA mortgage, the difference
  • Conventional vs. FHA mortgage, the difference
  • Conventional vs. FHA mortgage, the difference
  • Conventional vs. FHA mortgage, the difference
  • Conventional vs. FHA mortgage, the difference
  • Conventional vs. FHA mortgage, the difference