Rumor has it that people are getting FHA home loans with a foreclosure or bankruptcy just 12 months after discharge. Is that true? There's a common misconception that bankruptcy or foreclosure means the end of your ability to get credit, take out a loan, or make any other type of financial step forward. While it's certainly more difficult to do and does limit your options to one degree or another, the fact is that a bankruptcy, short sale, or foreclosure doesn't have to mean that at all. There are numerous programs available that can help rebuild your credit, make loans available to you, and much more.
One of the best options for securing a home loan is to utilize an FHA loan. These loans are backed by the government and designed to make it easy for home buyers to qualify for a loan that has easier to manage terms and lower interest rates than other options on the market. They're also available to those with bad credit and even with bankruptcy or foreclosure in their history.
In the past, FHA foreclosure loans required that applicants wait 3 years after their bankruptcy or default before they could qualify for an FHA loan. However, as of August 15, 2013 that waiting period has been waived and today it is possible to secure a loan after only 1 year following a foreclosure, bankruptcy, or other similar event.
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Qualifying for a FHA mortgage after a short sale or foreclosure is a process that's fairly straightforward. It begins with finding a good FHA qualified lender. The Federal Housing Administration is actually the insurer of the loan – not the actual lending company. As a result, you'll need to find a lender that will be approved by the FHA. Then, meeting some simple steps will be required. A few common things will influence whether or not you're able to qualify for FHA loans after foreclosure.
One year must have passed since the foreclosure, short sale, or bankruptcy and during that time all bills and loans must be paid on time.
Debt to income ratios must be met. The specific lender and situation will determine the ratio level.
Stable employment for an extended period of time will have a big impact on your ability to secure a loan as well.
Housing counseling must be completed as well at some point prior to the closing date of the loan.
Another thing to think about is the FHA Extenuating Circumstances Program. This program is set up to help those who have suffered a reduction in their credit level or other financial issues as a result of unemployment or their hours being reduced. By using this program it's possible to receive a loan despite having bad credit. Applying for the program is done through an approved lender and takes little time. Best of all, this program doesn't raise interest rates or add additional fees to the overall closing costs. It is structured just like a traditional FHA loan, only designed to help those who have lost at least 20% of their household income.
If you meet these basic requirements, getting a loan after bankruptcy or foreclosure may not be as difficult as you suspect.