Fha Home Loan With Property Included In Bankruptcy

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,034
159
63
San Diego, California
www.loansreduced.com
Recently we have received many calls of homeowners being denied an FHA loan when they were told by the loan officer that they could go by the bankruptcy seasoning date rather than when the property forecloses. Typically I receive these calls when homeowners are already in contract to purchase a new home and have just recently been told they don't qualify.

I would like to explain the difference between FHA and Conventional and when you would be eligible.

FHA: If you included a home in bankruptcy and the home subsequently foreclosed your seasoning will start upon the home being foreclosed. FHA does NOT consider foreclosure and bankruptcy ONE event, they consider it multiple events and the latest event will begin the seasoning.

For example: Home included in Bankruptcy that was discharged April, 2012 however the home foreclosed April of 2015. This means that we would go by the foreclosure date of April 2015 and 3 years must have elapsed from the point of the foreclosure.

A Conventional home loan views bankruptcy and foreclosure as One event and the seasoning would begin at the point the bankruptcy was discharged. 4 years must have elapsed from the point of the bankruptcy discharge date and the property must be foreclosed in order to be eligible for conventional financing. Conventional financing starts at 5% down.

When reviewing your bankruptcy paperwork there is what is called a "Statement of Intention" - this statement of intention will show your "Intent" of whether you wanted to retain the property or surrender. Ideally we want the statement of intention to show that you are surrendering the property in bankruptcy. If it does not show that it doesn't mean that the home was not included in the bankruptcy as it is just the "Statement of Intention" not what the actual outcome of the bankruptcy was. Maybe at the beginning you decided to keep the home and throughout the bankruptcy changed your mind.

If you have any questions about what it takes to qualify for this loan program feel free to post on this thread or reach out to us directly. If you're reading this after being told that you can qualify for FHA, be leery of what the person is telling you.

There are portfolio options available if you don't fit the box of conventional or FHA as well.
 

indeep1959

LoanSafe Member
Jan 14, 2009
358
6
18
Wondering when I can qualify for a conventional loan, could use some guidance.

I'm planning to retire in about 4 years, and move south. However, I need to keep a place up north until then, but purchase a second home (eventual retirement home) soon or whenever I can qualify.

Had a BK7 in July 2010 discharged. Had two homes at the time, the first one I've kept through modifications etc. and am current.
The second one, I foreclosed on in Sept of 2011.

The way I see it I cannot purchase a second home with conventional mortgage until 7 years has passed since the foreclosure, (Sept 2018) correct? I can't do FHA since they do not allow second home purchases, also correct?

I am actually trying to sell my current home now to free up funds for this eventual second home purchase, and will rent up north until I retire.
So FHA still looks at it like a second home purchase even if I am renting another place, correct as well?

My only reason to purchase a retirement home asap is to avoid possible future interest rate hikes and pricing hikes, as my timing on these kind of things are always bad, lol, hence the foreclosures and modifications.

Income wise we can support the two places, an inexpensive rental and a home south, but not my current home and the other home as well. Hence the reason to wait until we sell here.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,034
159
63
San Diego, California
www.loansreduced.com
Hi Indeep1969,
Conventional has come out with a guideline like mentioned above where as long as you can provide proof of the home being included in the bankruptcy the bankruptcy seasoning periods would apply. For example if you had a BK7 discharged in 2010 you would have become eligible in 2014 to purchase a new home. Conventional will allow investment property transactions as well, FHA will not like you mentioned above.

The main reason I wrote this article is because people have been given wrong advice that they were allowed to be approved based on a 2 year time period of the bankruptcy discharge because of FHA guidelines.

Yes FHA is only for owner occupied transactions.

I'd love to go over it with you in more detail, feel free to shoot me an e-mail or call when you have a chance.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,034
159
63
San Diego, California
www.loansreduced.com
Anytime! I had quite a bit of phone calls coming in with homeowners being denied by loan officers in the middle of purchasing a home. That's not the experience anyone wants to have when it comes to dealing with the most important transaction in most of our lifetimes.