Buying a HUD Home After Bankruptcy
Obtaining a Home Mortgage After Bankruptcy
After you have filed either a Chapter 7 bankruptcy (i.e., liquidation) or a Chapter 13 bankruptcy (i.e., reorganization), one of your goals may be to clean up your credit and overall financial situation so that you can obtain a home mortgage. However, it may not be clear to you how and when getting a mortgage with a bankruptcy on your credit report will become an option. This blog will specifically address your options to purchase a HUD home after bankruptcy.
Rest assured that the U.S. Department of Housing and Urban Development, more commonly known as HUD, has an option for obtaining a home mortgage for those who have a recent bankruptcy.
FHA Insured Loans
HUD offers loans insured by the Federal Housing Administration, or FHA. FHA insured loans are designed to make loans available to those with a lower income or who have encountered other financial hardships, including those who have declared bankruptcy. HUD has defined specific guidelines for when those who have declared bankruptcy can obtain an FHA insured loan.
HUD Guidelines for Chapter 7 Bankruptcy
HUD defines in Section 4.C.2.G of 4155.1 Mortgage Credit Analysis for Mortgage Insurance the FHA insured loan requirements for those who have filed a Chapter 7 bankruptcy. These requirements vary depending on how long ago the bankruptcy was discharged.
If the Chapter 7 bankruptcy has been discharged for at least two years, you must have done at least one of the following:
- Re-established a history of good credit, or
- Not taken on any additional or new credit obligations.
If the Chapter 7 bankruptcy has been discharged for at least one year but less than two years, you must do the following:
- Demonstrate that the bankruptcy was caused by circumstances outside of your control, and
- Provide documented proof that your financial affairs have been managed in a responsible manner since the discharge of the bankruptcy.
What situation will be considered “circumstances outside of your control” will vary from case to case and would take review by a bankruptcy attorney or other financial representative who is experienced in working with FHA insured loans.
In addition, the lender working with you on the mortgage must review your current financial position and acknowledge it does not appear the need for another bankruptcy will arise.
HUD Guidelines for Chapter 13 Bankruptcy
HUD defines in Section 4.C.2.H of 4155.1 Mortgage Credit Analysis for Mortgage Insurance the FHA insured loan requirements for those who have filed a Chapter 13 bankruptcy.
Under a Chapter 13 bankruptcy, the lender working with you must document the following:
- At least one year has passed since completion of the payment plan defined under the Chapter 13 bankruptcy.
- The payment plan was completed in a satisfactory manner and payments were made on time.
- The bankruptcy court that established the payment plan has provided you permission to obtain a home mortgage.
Hiring a Bankruptcy Attorney
Note that the information above should serve as a general guidelines and not be used as legal advice. If you want to speak with someone about the possibility of obtaining a home mortgage after having filed a Chapter 7 or Chapter 13 bankruptcy, you should call the telephone number located at the top of this web site. You will be put in touch with a bankruptcy attorney who can review your unique financial situation and confirm what options are available for obtaining a home mortgage under HUD or possibly other programs. So do not wait to get the help you need in obtaining a home mortgage.