What are the USDA and FHA waiting periods if a home was included in bankruptcy?

USDA or FHA – Do you know what are the USDA and FHA waiting periods if a home was included in bankruptcy?

Last week we spoke about bankruptcy qualifying in general, but today’s topic is critical because it can cause a transaction to stop cold in its tracks.

If you had a prior mortgage included with bankruptcy, can you qualify for a USDA loan?

Thankfully USDA loans offer guidelines which can help in these situations and today’s video tip will cover the details you need to know.

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So, what are the USDA and FHA waiting periods if a home was included in bankruptcy?

In cases when there is a Chapter 7 Bankruptcy ,  which included a mortgage, USDA loan eligibility and qualifying questions can arise about the actual timing of when the deed to the property’s ownership transferred out of the homeowner’s name officially.

Remember, on FHA loans there is 2 year bankruptcy discharge waiting period, and on top of that, a 3 year waiting period on foreclosure completions. This only starts after the deed to any property in question transfers out of their name.  As many have experienced, this could be months or even years after the actual bankruptcy was discharged.

Unlike FHA guidelines, the USDA guidelines state the following:

“When a Chapter 7 bankruptcy absolved the mortgage debt for the applicant, any foreclosure or remaining foreclosure pending is an action against the property, not the applicant. The foreclosure action is not considered as adverse credit in the applicant’s evaluation. A loan underwritten with the assistance of GUS will not be required to be manually down-graded when the bankruptcy discharge included the mortgage debt.”

Just be aware – if the property has not officially transferred yet, additional requirements will need to be reviewed for USDA eligibility.

If you have any further questions about the USDA and FHA waiting periods if a home was included in bankruptcy, please call my team today so we can start to review.

Many loans have come across my desk for a 2nd opinion that were not reviewed properly by the original lender because of this specific guideline.  It is critical to understand the details about how to qualify for a USDA loan when there is a prior deed transfer after a bankruptcy – it could mean the difference between a closing or a missed opportunity. We are the experts when it comes to the USDA loan program!