Last updated November 2nd, 2018
It goes without saying that mortgage debt is one of the primary problems for people living in Las Vegas. The question many ask themselves or their Las Vegas bankruptcy lawyer is, How can I buy a home after bankruptcy?
One option for debtors is obtaining a mortgage guarantee through the Federal Housing Administration (FHA), which is a unit of the U.S. Department of Housing and Urban Development. The FHA doesn’t make loans directly, but it will guarantee a mortgage by another lender if the buyer meets certain requirements.
Those requirements are stricter for buyers who have discharged debt in bankruptcy, but they aren’t at all insurmountable. Here are 7 steps you should take to satisfy the FHA loan requirements after bankruptcy:
1. Wait two years for an FHA loan after Chapter 7 bankruptcy . . .
Chapter 7 bankruptcy is also known as a liquidation bankruptcy. All of a debtor’s non-exempt assets are sold to pay off his or her unsecured creditors. In practice, debtors who file for Chapter 7 bankruptcy normally don’t have many non-exempt assets, so they get to keep everything they own.
At the conclusion of a Chapter 7 bankruptcy, the bankruptcy court grants the debtor a discharge, releasing him or her from further obligations on most remaining unsecured debts.
Obtaining an FHA loan after Chapter 7 bankruptcy normally requires waiting for two years after your discharge. Note that it’s not the filing date that matters, but the discharge date. Buyers must also demonstrate a documented ability to manage his or her financial affairs.
2. … or maybe just one year.
Buyers who can demonstrate that their bankruptcies were caused by an economic event beyond their control need only wait 12 months to apply for an FHA loan guarantee if they can exhibit a documented ability to manage their financial affairs responsibly.
An “economic event” includes a job loss, significant reduction in pay, or a serious medical condition. To qualify for this shortened period, you must show that these circumstances caused a six-month loss of income of at least 20%. And you must be able to show a good payment history before and after that event.
3. Keep up with your repayment plan for one year for an FHA loan after Chapter 13 bankruptcy.
In a Chapter 13 bankruptcy, rather than liquidating his or her non-exempt assets, a debtor creates a three- or five-year repayment plan to pay off as much of his or her unsecured debts as possible. At the end of that three- to five-year plan, the debtor’s remaining unsecured debts are discharged.
But you don’t have to wait as long for an FHA loan after Chapter 13 bankruptcy as after a Chapter 7 bankruptcy. In fact, you can qualify for an FHA loan after just one year of timely payments on your Chapter 13 repayment plan.
Other limitations apply, however. For example, you must obtain a letter from the bankruptcy trustee stating the dollar amount that you can borrow to buy a new home and show that you are financially secure enough to take on a new mortgage.
4. Establish good credit since your bankruptcy.
Chapter 7 and Chapter 13 debtors must reestablish good credit or show that they haven’t taken on any new debts before they will be considered for an FHA loan after bankruptcy.
5. Repay tax liens to the IRS or make repayment arrangements.
To qualify for an FHA loan after bankruptcy (or at any other time, in fact), a buyer must have repaid any tax liens to the IRS. Alternatively, the buyer may qualify after agreeing to a repayment plan with the IRS.
6. Three years have passed since the buyer’s last foreclosure.
Like FHA loans after bankruptcy, FHA loans after foreclosure involve a “seasoning period” of a few years before a person can qualify. For foreclosures, this waiting period is generally three years, and applies to both actual foreclosures and deeds in lieu of foreclosure.
7. All judgments have been paid.
Finally, qualifying for an FHA loan requires that any judgments against the buyer have been satisfactorily dealt with. This generally means that they have been paid.
Get Help Meeting FHA Loan Requirements After Bankruptcy
FHA loans are designed to give poorer people a leg up in their lives so that they can afford to buy real estate and live the American Dream. Talk to your Las Vegas bankruptcy lawyer to help strategize your bankruptcy and even your life afterwards.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.