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The Basics of an FHA Loan

In short, an FHA Loan is insured or backed by the Federal Housing Administration (FHA).

The government guarantees the loan in the case of non-payment, promoting lenders to give loans with less restive guide lines. These loans have gained their popularity from the "Low Down Payment" option of 3.5% which is not available in most conventional loans, that usually require a minimum of 10% down. In addition to the low down payment option, FHA allows for the seller to contribute up to 6% of the sale price towards the buyer’s closing costs. FHA also has minimal restrictions towards "gift money" which can be applied towards the buyer’s closing costs.

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Do I Qualify?

Even after a financial setback like Bankruptcy or Foreclosure, you still may qualify for an FHA Loan.

Chapter 13 Bankruptcy

FHA will consider approving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee's written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability.

Chapter 7 Bankruptcy

At least two years must have elapsed since the discharge date of the borrower and / or spouse's Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable job.

Foreclosure

FHA insured mortgages are generally not available to borrowers whose property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years. However, if the foreclosure of the borrower's main residence was the result of extenuating circumstances, an exception may be granted if they have since established good credit. This does not include the inability to sell a home when transferring from one area to another.

How Long Before I Can Purchase Again?

Foreclosure

3 years from completion date

Short Sale

3 years from completion date or settlement date if in default at time of sale

Chapter 7 or 11 Bankruptcy

2 years from discharge date

Chapter 13 Bankruptcy

1 year from discharge or dismissal

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