You Can Qualify for an FHA Mortgaage after Court Judgements, Collections, Bankruptcy and Foreclosure
The economy has been tough on many potential homebuyers and Stockton and Lodi is no exception. Many of my clients ask me how I can qualify for a loan to buy a home after they have gone through Judgment, Collection, Bankruptcy or Foreclosure. The FHA loan is probably their best option.
FHA Loan after Collection and Judgment:
FHA does not require that collection accounts be paid off as a condition of mortgage approval. However, court-ordered judgments must be paid off before the mortgage loan is eligible for FHA insurance endorsement.
Exception: An exception on a court-ordered judgment may be made if the borrower
- The buyer has an agreement with the creditor to make regular and timely payments, and
- The buyer provided documentation indicating that payments have been made according to the agreement.
FHA Loan after Foreclosure:
A borrower is generally not eligible for a new FHA-insured mortgage when, during the previous three years
- His/her previous principal residence or other real property was foreclosed, or
- He/she has given a deed-in-lieu of foreclosure.
Exception: 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.
FHA Loan after Bankruptcy:
A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the lender documents that
- one year of the payout period under the bankruptcy has elapsed, and
- The borrower’s payment performance has been satisfactory and all required payments have been made on time.
The borrower must receive written permission from the court to enter into the mortgage transaction.
Note: Exceptions to the guidelines are largely subjective and is based on the interpretation of the underwriter. Also, some of the lenders may not allow exceptions even if there is documentation to prove extenuating circumstances. Make sure to provide complete and accurate information to the lender at the time of loan application.