To alleviate any "confusion" for anyone that may be "confused" by conflicting information:
Once you are discharged from a Chapter 13 bankruptcy (this usually occurs within a month or two after you have made your final payment) FHA generally requires a 2 year waiting period for financing. Exceptions can be made for less than 2 years with either a downgrade to manual underwrite OR for borrowers that may qualify for the "Back to Work" program. Below I will post directly from the FHA underwriting manual Section 4155.14C.2h and HUD Mortgagee letter 2013-26. I sincerely apologize if any lack of detail on my part caused "confusion" for anybody!
A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an
FHA-insured mortgage, provided that the lender documents that
Â· one year of the pay-out period under the bankruptcy has elapsed
Â· the borrowerâ€™s payment performance has been satisfactory and all required
payments have been made on time, and
Â· the borrower has received written permission from bankruptcy court to enter
into the mortgage transaction.
TOTAL Scorecard Accept/Approve Recommendation
Lender documentation must show two years from the discharge date of a
Chapter 13 bankruptcy. If the Chapter 13 bankruptcy has not been discharged
for a minimum period of two years, the loan must be downgraded to a Refer
and evaluated by a Direct Endorsement (DE) underwriter.
Back to Work program excerpt from Letter 2013-26
To that end, FHA is allowing for the consideration of borrowers who have experienced an Economic Event and can document that:
ï‚· Certain credit impairments were the result of a Loss of Employment or a significant loss of Household Income beyond the borrowerâ€™s control;
ï‚· the borrower has demonstrated full recovery from the event; and,
ï‚· the borrower has completed housing counseling.
An Economic Event is any occurrence beyond the borrowerâ€™s control that results in Loss of Employment, Loss of Income, or a combination of both, which causes a reduction in the borrowerâ€™s Household Income of twenty (20) percent or more for a period of at least six (6) months.
The Onset of an Economic Event is the month of Loss of Employment/Income.
Recovery from an Economic Event is the re-establishment of Satisfactory Credit (as defined on page 5 of this ML) for a minimum of twelve (12) months.