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mdk · Mar 21, 2006, 07:54 AM

Hello all!

My family and I want to get into our first house when our current lease is up (Feb-07). We went through a CH 7 bankruptcy and it was discharged 4/8/05. Everything I've seen says you have to wait 2-years before you would qualify for an FHA loan. Are there ever any exceptions to that rule? Working on cleaning up my credit report / score now. We got a car loan in Dec 2005 and I'm getting a secured CC to help rebuild credit. Other than that I have no other debt. I have 10 years at the same job.

Any advice would be greatly appreciated.

Thanks!

Dr D · Mar 21, 2006, 10:18 AM

Yes, there is an exception to the two year rule for a Chapter 7 Bankruptcy (and three year rule for a Foreclosure). "An elapsed period of less than two years, but not less than twelve months, may be acceptable if the borrower can show that the bankruptcy was caused by EXTENUATING circumstances beyond his or her control and has since exhibited a documented ability to manage his or her financial affairs in a responsible manner. Additionally, the lender must document that the borrower's current situation indicates that the events that led to the bankruptcy are not likely to recur."

This is a very high hurdle to overcome, requiring a committed borrower willing to provide extensive documentation, an experienced loan officer willing to devote the time to assemble it in a coherent and persuasive manner, and an underwriter who is not afraid to make the tough decisions. (Underwriters get report cards from FHA. Too mant F's can result in an uderwriter losing their "Direct Endorsement" privileges.). A borrower who had good credit prior to a catastrophic event (such as a debilitating injury, or illness, shutdown of their long term employer in a small town without alternative employers, etc) might be a good candidate for such an exeption. Situation such as a divorce or merely being overextended probably would not qualify. I hope that this answers your question.

mdk · Mar 21, 2006, 10:46 AM

Thanks Dr. D! My 4 yo son had a heart surgery when he was 2 1/2 months old and my wife lost her job because she took off to be with him at the hospital and care for him when he came home. That was basically the start of our financial problems that we had. Needless to say I didn't care much about the debt I had (only cared about my son and his comfort) and it started to snowball. I tried to keep up but once you get over the limit on your CC's it's tough to get them caught up again. We only had about 7k in debt when we did our CH 7.

Thanks again for the info!

mdk