FHA Loans and Consumer Bankruptcy

If you are thinking about filing for consumer bankruptcy in Chicago, or if you filed for Chapter 7 or Chapter 13 bankruptcy relatively recently, you may be wondering about your options for a mortgage. For instance, will you be able to qualify for a mortgage again after filing for bankruptcy? Can homeownership be in your future? The answer to both of those questions is yes, but it can be more difficult to get some types of loans after you have filed for bankruptcy. According to a recent article from U.S. News & World Report, loans from the Federal Housing Administration (FHA) may be the best bet for consumers who have recently filed for bankruptcy or are planning to file for bankruptcy in the near future.
How FHA Loans are Beneficial for Consumers After Bankruptcy
There are many benefits to FHA loans, especially for consumers who are just starting to get back on track with their finances. For conventional mortgages (that are not FHA loans), borrowers typically need to have a down payment of about 20%. With an FHA loan, however, potential borrowers can have as little as a 3.5% down payment. To put that in perspective, imagine that you want to buy a house for $300,000 in the Chicago area. For a conventional loan, you would typically need to have $60,000 as a down payment. To obtain an FHA loan, however, you may only need as little as $10,500 as a down payment.
For consumers in Oak Park who have filed for bankruptcy in the last couple of years who want to buy a home, FHA loans often allow them to do so relatively quickly after the bankruptcy. While Chapter 7 bankruptcy does give debtors a fresh start, it can be extremely difficult to save tens of thousands of dollars in a short period of time, even if you are managing your money well. As such, knowing that you may be eligible for an FHA loan that only requires a 3.5% down payment can be encouraging.
In addition, FHA loans do not require the same strong credit scores that many conventional home loans require. Indeed, as the article underscores, FHA loans with a 3.5% down payment require only a credit score of 580 or above, while even consumers with a credit score of 500 can be eligible for an FHA loan if they have a down payment of at least 10%.
Waiting Times for Mortgages After Filing for Consumer Bankruptcy
If you file for bankruptcy and want to apply for an FHA loan shortly thereafter, how long do you have to wait? The article explains that waiting times for individuals who have filed for Chapter 7 or Chapter 13 bankruptcy can vary depending upon the circumstances of the cases. Generally speaking, these are the waiting time:
  • Chapter 7 bankruptcy: Two years for bankruptcy with extenuating circumstances (meaning “nonrecurring events beyond your control that result in sudden, significant, prolonged reduction in income or a catastrophic increase in financial obligations), or 4 years otherwise;
  • Chapter 13 bankruptcy: Two years from the date of discharge, or four years from the date of dismissal; and
  • Multiple bankruptcies: Three years from the date of the most recent discharge or dismissal if there are extenuating circumstances, or five years if you have had more than one bankruptcy filing in the last seven years (and that most recent bankruptcy must have resulted from extenuating circumstances).
Contact an Oak Park Bankruptcy Lawyer
If you have questions about obtaining a home loan after bankruptcy, an Oak Park bankruptcy attorney can speak with you today. Contact the Emerson Law Firm for additional information.
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