The market conditions of today’s economy have caused lenders to grow more hesitant when issuing loans. More thorough credit checks and additional screening are just some of the harsh realities that have prevented buyers from being able to secure a mortgage. Increased regulation within the mortgage industry is aimed at ensuring that both parties in a contract, meaning the creditors and lenders, understand the obligations of the financial agreement.
First-time borrowers and those with a poor credit history have an extremely difficult time obtaining a mortgage loan. However, the Federal Housing Administration (FHA) has addressed this issue by providing a guarantee to lenders that a loan will be paid off in full if a borrower defaults. When a borrower defaults, he or she is no longer able to make a monthly mortgage payment, which is detrimental to the continued operation of a lending institution.
The Federal Housing Administration provides added comfort to lenders, as it can guarantee that all liabilities will eventually be repaid.
In some unfortunate situations, a borrower may have to declare bankruptcy. This harsh reality comes about when a borrower is no longer generating a regular income stream. One would presume that if a borrower files for bankruptcy, he or she will not be able to secure a mortgage. However, the Federal Housing Administration has made possible the opportunity for those who have suffered under bankruptcy to secure a regular mortgage.
In order to obtain a mortgage after bankruptcy, there are a number of qualifications that must be met. The two most important involve obtaining a home loan guarantee through the federal housing administration and then being able to obtain a loan approval through a regular mortgage lender. It should be noted that if one does receive a federal home loan guarantee, it does not necessarily mean that he or she will be able to obtain approval for a regular mortgage application.
A mortgage lender can still screen the applicant to ensure eligibility. Some factors that determine whether or not the borrower will be eligible include the type of bankruptcy that was filed by the applicant (Chapter 7 or Chapter 13), at what time the bankruptcy was discharged, whether or not the bankruptcy was followed by foreclosure and how the applicant managed finances after the bankruptcy. A combination of all of these conditions is pivotal in the acceptance or rejection of a loan after bankruptcy.
As can be seen, applying for an FHA Mortgage after bankruptcy is a tedious process.
For first-time applicants or applicants with a poor history of credit, every minute is worthwhile. Thanks to the guarantee offered by the Federal Housing Administration, those who would not normally be able to secure a mortgage have the opportunity. In more severe cases, those who have recently filed for bankruptcy can get a second chance at building equity in a new home.