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USDA vs FHA: Which can you apply for more quickly after bankruptcy?

March 5th, 2021 by Sean Stephens

20 year leading mortgage lenderLast week, we reviewed how a Chapter 7 bankruptcy affects qualifying for a USDA loan. The next question that often comes after this information is, “How does this compare to an FHA loan?” That’s why today, we’ll review USDA vs FHA and how they differ when applying for a mortgage after bankruptcy.

Also, be sure to download our FREE Loan Comparison Chart. It combines the basic features of USDA, FHA, VA, and Conventional Loans into a simple one-page chart. Download it now!

USDA vs FHA

If you had a prior bankruptcy you can still qualify for a mortgage. However, the time at which you can qualify for a mortgage depends on the type of mortgage. That’s why we’re reviewing the qualifying factors after bankruptcy that differ between USDA loans and FHA loans.

While this may sound technical, knowing the details could help save your transaction!Okeechobee FL and Highlands County FL USDA Loans

FHA Loan After Bankruptcy

In cases where a Chapter 7 Bankruptcy includes a mortgage, qualifying issues can occur with the timing of the deed transfer.

When the deed is officially transferred out of the homeowner’s name, this is known as the deed transfer date. FHA loans base the waiting period on this deed transfer date.

Thus, it’s vital to understand that an FHA loan has a 2 year waiting period after a bankruptcy discharge and a 3 year waiting period on foreclosure completions.

Plus, the FHA 3 year foreclosure waiting period only starts after the deed transfer occurs. This could be months or even years after the actual bankruptcy was discharged.

Review – USDA Loan After Bankruptcy

Unlike FHA loans, USDA guidelines are much more flexible because they base the foreclosure waiting period off the bankruptcy discharge date. This removes the additional wait time!

In fact, USDA Guidelines state the following when a mortgage was included as part of a Chapter 7 bankruptcy:

“If the Chapter 7 Bankruptcy absolved a mortgage debt, the applicant is not legally liable to repay unless the debt was reaffirmed. Foreclosure action post Bankruptcy discharge is against the property, not the applicant, to allow the lender to obtain title.”

“However, until the property is fully titled to the lender, the applicant remains responsible for real estate taxes, home insurance premiums, HOA fees, special assessments, and similar debts.”

It’s critical to understand the details about how to qualify for a USDA loan when there is a prior deed transfer after bankruptcy – it could mean the difference between a closing or a missed opportunity!

USDA FlexibilityTampa FL USDA Approved Lender List

Thankfully, USDA loans offer guidelines with flexibility for bankruptcy situations. In fact, many loans have come across my desk for a 2nd opinion that were not reviewed properly because of bankruptcy. That’s why we are the experts when it comes to the USDA loan program!

As a USDA-approved lender, we are here to help.  Just call or email to discuss your scenario and let us show you the “Metroplex” difference!

800-806-9836 Ext. 280
SeanS@MPLX.org

As always, I want everyone to make it a great day, and I look forward to seeing you right here for the next tip of the week!

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