2 Years Seasoning Not Always Required for BK

Another happy family in a home.

And so it goes once again. Last month I received a phone call from a borrower less than 2 years out of a bankruptcy (last time it was an email from a blog reader). It was an interesting situation. She had been abandoned by her husband and left to raise their 4 kids. So, I'm sure you would ask--how do you prove abandonment? Well, my smart borrower had kept an email message from her husband in 2006 that clearly proved the case.

Again, let me be clear. This is not the norm, however, I want all of my readers to know that the FHA guidelines are very clear, you are still eligible for a FHA loan if you have "extentuating circumstances beyond your control." A few things to remember:

• You must have written evidence of these circumstances
• You must able to show that you have re-established credit

In my borrower's case she had saved every dime she had for a home and had amassed a significant amount in her savings. She deserved a home. She had opened new tradelines that proved she could pay her bills on time.

If you are in this situation, just know to keep hope alive. There's still hope.

What Credit Score Do I need for FHA?

In a blog post that I wrote in 2007, I stated very clearly that FHA has no credit score requirement. The problem is, the banks that must approve the loans want to curb their defaults. As it was explained to me by one mortgage company executive, "We comb the loans that we have approved over the past few years, assessing where the majority of our failures are coming from. In our case, less than 600 FICOs seem to lead the pack."

That was 2007. Today the bar has been raised. Most banks want to see a 620 score or they will not lock and approve the loans. Are there exceptions to this rule? Sure, but they are far and few between. Will it ever loosen up? Not as long as we continue to see record number of foreclosures.

For borrowers with less than a 620, I suggest you work with a lender who has a "Credit Rescoring" tool available to them. Start early by ordering your credit report so that you know what you need to do in order to improve your score. This is the first step.

For in 2009, credit is king!