If you've lost your home to foreclosure after filing for bankruptcy, you may be facing a long road to recovery. Once you enter a bankruptcy petition, your credit rating typically plummets and remains depressed for years. Unfortunately, you may be disqualified from securing an FHA-insured loan for as long as it takes to restore your credit score to an acceptable level. Depending upon the state of your personal finances, the exact length of this restrictive period may vary considerably.
First, the manner in which you filed for bankruptcy is important. While both types of bankruptcy proceedings are harmful to your overall credit score, lenders tend to view Chapter 7 filings with extra suspicion. If you file a Chapter 7 bankruptcy, you won't be able to secure an FHA-insured loan for two years or more after the final discharge of your remaining debts.
If your credit score was already low when you filed for bankruptcy, you can expect to wait longer than two years for an FHA-insured loan. This is because the FHA sets a credit-score "floor" for prospective borrowers. While this varies according to the state of the mortgage market, it's unlikely that you'll be approved for an FHA loan with a sub-500 credit score. In fact, you shouldn't bank on acceptance until your credit score nears 600. Even then, your loan's cost may be several points above the standard prime rate.
If you enjoyed an excellent credit rating immediately before filing for bankruptcy, it shouldn't take you very long to rebuild your credit after your debts have been discharged. You may be able to reduce the FHA's blackout even further by proving that your foreclosure occurred during a period of "hardship." According to the FHA's guidelines, "hardship" may be defined as an expensive medical emergency that affects your immediate family, the sudden death of your spouse, or a long-term period of unemployment caused by an involuntary layoff. Some FHA documents may refer to these events as "extenuating circumstances." You may be able to receive an FHA-insured loan just 12 months after the closing of a foreclosure brought on by extenuating circumstances.
The circumstances under which your lender initiated foreclosure proceedings may also affect your ability to secure an FHA-insured loan. If you stopped making your mortgage payments before filing for bankruptcy, you may be forced to wait for four or more years before you can secure another FHA loan.