The FHA Loan Bankruptcy Waiting Period in Washington

Published:
June 13, 2024
Last updated:
June 13, 2024
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Can you get approved for a mortgage after bankruptcy? If you’re considering taking out an FHA loan in Washington, you may still be able to qualify thanks to the program’s flexibility. However, there is an FHA loan bankruptcy waiting period in Washington that must pass first, and the circumstance(s) that caused your bankruptcy should have passed.

Key Takeaways:

  • FHA loans are often more flexible when it comes to previous bankruptcies.
  • Washington home buyers could qualify one to two years after a bankruptcy.
  • FHA’s requirements can vary for Chapter 7 versus Chapter 13 filings.
  • This article explains everything you need to know about the subject.

FHA loans can provide a more flexible financing option for home buyers in Washington who’ve had credit issues in the past. The qualification criteria are generally more lenient when compared to conventional mortgage loans.

One example has to do with bankruptcy filings. With an FHA loan, a home buyer in Washington who has filed for bankruptcy in the past could qualify for a mortgage in one to two years.

Conventional home loans, on the other hand, typically require a longer waiting period after a Chapter 7 or Chapter 13 bankruptcy.

Qualifying for an FHA Loan After Bankruptcy

Many home buyers ask themselves the question, “How long after bankruptcy can I get a mortgage?” The answer depends on a few things, such as the type of bankruptcy filed and the improvements made following bankruptcy. 

FHA loans are insured by the Federal Housing Administration, which falls under the Department of Housing and Urban Development (HUD).

Mortgage lenders in Washington that offer these loans receive extra protection against borrower default. This in turn allows lenders to qualify borrowers who might not meet the stricter standards that are often associated with conventional loans.

In the state of Washington, it’s entirely possible to buy a home with an FHA loan, even if you’ve had a bankruptcy in the past. If the circumstances that caused the bankruptcy have passed, and you’ve reestablished a pattern of responsible credit usage, you could qualify for an FHA loan.

The rules and requirements vary depending on whether a person has filed for Chapter 7 or Chapter 13 bankruptcy. So let’s tackle them one at a time…

Chapter 7: One to Two-Year Waiting Period

A Chapter 7 bankruptcy involves the liquidation of assets. Through this process, a person’s assets are sold in order to pay off their creditors. People with low income and a lot of debt often choose this path. It eliminates the debt entirely to give the person a fresh start.

In Washington, a home buyer who has completed a Chapter 7 or liquidation bankruptcy in the past could qualify for an FHA loan within two years of the discharge date. The “discharge” occurs when a court order officially releases the debtor from most debts included in the bankruptcy filing.

According to the official HUD handbook for this loan program:

“A Chapter 7 bankruptcy (liquidation) does not disqualify a Borrower from obtaining an FHA-insured Mortgage if, at the time of case number assignment, at least two years have elapsed since the date of the bankruptcy discharge.”

During that two-year waiting period, the borrower must bring their credit profile back into good standing and avoid new credit obligations. This can be done by paying all bills on time and refraining from applying for loans or credit cards.

If the bankruptcy was caused by some kind of extenuating circumstance beyond the person’s control, the waiting period could be reduced to 12 months.

Chapter 13: At Least 12 Months Into the Payment Plan

The FHA loan requirements following a Chapter 13 bankruptcy work a bit differently.

Chapter 13 is also known as a “reorganization bankruptcy.” It allows debtors with regular income to propose a repayment plan to catch up on missed payments. The repayment term usually lasts for three to five years, but this can vary.

Home buyers in Washington with a Chapter 13 filing could qualify for an FHA loan after completing at least 12 months of their repayment plan. This 12-month waiting period gives the borrower a chance to demonstrate their commitment to the repayment process.

During this time, the borrower must make all payments associated with the bankruptcy filing and also receive permission from the court to take out a mortgage loan. They must also be able to show that the circumstances that lead to the bankruptcy are not likely to recur.

Conventional Loans Usually Require a Longer Wait

When compared to the FHA program, conventional home loans typically require a longer waiting period for borrowers who have filed for bankruptcy.

By definition, a “conventional” mortgage loan is one that does not receive any kind of government insurance or guarantee. That label distinguishes “regular” loans from the government-backed mortgage programs like FHA and VA.

A person who wants to use a conventional loan after a bankruptcy filing typically must wait at least two to four years, depending on the circumstances.

Conventional mortgage financing can be stricter in other areas as well, such as credit score and debt ratio requirements.

Bankruptcy and FHA Loans: The Bottom Line for Home Buyers

A bankruptcy filing will not follow you for life, nor will it permanently bar you from using a mortgage loan to buy a home in Washington.

If your bankruptcy resulted from things beyond your control, like the loss of a job or major medical expenses, you could be eligible for a mortgage loan within one or two years. The best thing you can do in the meantime is pay all of your bills on time, to restore your credit profile.

FHA loans in Washington can be more forgiving in other areas as well. They typically allow for a lower credit score when compared to conventional (non-government-backed) mortgage loans.

Ultimately, there is an FHA loan bankruptcy waiting period in Washington that should pass before you apply for a loan and start the process of home buying in Washington. As long as the bankruptcy has been dealt with and the situation that led to your bankruptcy in the first place is in the past, you may be eligible for an FHA loan in WA State.

Need a mortgage?

There’s a mortgage product out there for almost every type of home buyer, including those who have had credit issues in the past. And the best way to discover them is by working with a knowledgeable mortgage loan officer, like the team at Sammamish Mortgage. Reach out today to get an interest rate quote and get pre-approved for a home loan in WA State.

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