FHA Loan After Bankruptcy: Waiting Period, Requirements, and More

It’s possible to qualify for an FHA loan after a bankruptcy filing. Depending on the circumstances, there might be a waiting period of 12 months to two years from the discharge date.

After that period of time, an eligible borrower could get an FHA-insured mortgage loan to buy a house. There are different requirements for Chapter 7 and 13 as explained below.

Getting an FHA Loan After Bankruptcy: It’s Doable

The FHA loan program can be a good option for borrowers who can’t qualify for conventional financing. This program tends to be more forgiving, when it comes to basic borrower eligibility and qualification requirements.

Bankruptcy is one of the areas where the FHA loan program offers some flexibility and “forgiveness.” It’s possible to qualify for an FHA loan after a Chapter 7 or Chapter 13 bankruptcy filing, once the borrower has met a certain waiting period and other requirements.

Two-Year Waiting Period for Some Borrowers

The FHA loan program falls under the Department of Housing and Urban Development (HUD). So it’s HUD that promulgates all of the criteria and requirements for this program. They have specific guidelines for borrowers who want to use an FHA loan to buy a home after a bankruptcy filing.

Most of the requirements for this program can be found within HUD Handbook 4000.1, also known as the Single Family Housing Policy Handbook. For the sake of simplicity, we will refer to it as “the handbook” for the rest of this article.

We searched through the nearly 1,000 pages of this handbook to find out exactly what it said about using an FHA loan after a personal bankruptcy filing. Here’s what we found:

Page 185 introduces the topic of bankruptcy, as it relates to the mortgage underwriting process. This is also the first place where we encountered the mention of a two-year waiting period for some borrowers.

The official guidelines state:

“The Mortgagee [or lender] must document the passage of two years since the discharge date of any bankruptcy. If the bankruptcy was discharged within two years from the date of case number assignment, the Mortgage must be downgraded to a Refer and manually underwritten.”

There is also some required documentation. The handbook says that mortgage lenders must verify and document this passage of time by obtaining credit reports. In cases where the credit report does not verify the discharge date (or if additional documentation is needed to determine if liabilities were discharged) the lender “must obtain the bankruptcy and discharge documents.”

Guidelines for Manual Underwriting

The waiting period and documentation requirements mentioned above pertain to automated underwriting, in particular. This is when the lender uses the FHA’s TOTAL scorecard through an automated underwriting system. You’ll notice that at the end of the passage above, it also refers to a “manual” underwrite.

On page 258 of the official handbook, we encounter some guidelines for manual underwriting.

“A Chapter 7 bankruptcy (liquidation) does not disqualify a Borrower from obtaining an FHA-insured Mortgage if, at the time of case number assignment, at least two years have elapsed since the date of the bankruptcy discharge.”

During the two-year time frame mentioned above, the borrower must have:

  • re-established good credit; or
  • chosen not to incur new credit obligations.

In some cases, the “waiting period” for getting an FHA loan after bankruptcy can be shorter than two years (but not less than 12 months). This is possible if the borrower can show that the bankruptcy was the result of “extenuating circumstances beyond the borrower’s control.”

Additionally, the borrower must be able to exhibit a “documented ability to manage their financial affairs in a responsible manner.” It’s up to the mortgage lender to determine these things, and to document them accordingly.

Additional Guidelines for Chapter 13

There are some distinctions between Chapter 7 and Chapter 13 bankruptcies, with regard to FHA loan approval. Page 259 of the handbook offers some additional guidelines and requirements relating to Chapter 13 in particular.

The difference: According to the NOLO legal library, Chapter 13 is a “reorganization bankruptcy designed for debtors with regular income who have enough left over each month to pay back at least a portion of their debts through a repayment plan.” (Chapter 7 typically does not involve a repayment plan.)

Here’s what the handbook says about getting an FHA loan after a Chapter 13 filing:

“A Chapter 13 bankruptcy does not disqualify a Borrower from obtaining an FHA- insured Mortgage, if at the time of case number assignment at least 12 months of the pay-out period under the bankruptcy has elapsed.”

It also states that the Mortgagee (lender) must ensure that, during the time period mentioned above, the borrower’s payment performance “has been satisfactory and all required payments have been made on time.” The Mortgagee must also determine that the borrower has received “written permission from bankruptcy court to enter into the mortgage transaction.”

The documentation requirements for Chapter 13 are similar to those mentioned earlier. The lender can use credit reports or bankruptcy / discharge documents, as appropriate. The Mortgagee is also required to document that the borrower’s “current situation indicates that the events which led to the bankruptcy are not likely to recur.”

Disclaimer: This article explains some of the basic requirements and documentation needed to qualify for an FHA loan after bankruptcy. All quoted portions of this article came directly from HUD Handbook 4000.1. This article was updated in July 2018. We are not associated with HUD in any way. The information above is deemed accurate but not guaranteed. If you have questions about this program, you can refer to HUD.gov or send an email to answers@hud.gov.