One of the most attractive features of an FHA mortgage loan is that you can qualify with even severely damaged credit. This means if you have a foreclosure or bankruptcy (chapter 7 or 13) on your credit record, qualifying for the home of your dreams may still be very well within reach.

This is because FHA does not have a specific lower limit regarding FICO scores. FHA lenders who process and approve your FHA loan assume no risk because the Federal government insures all loans in the event that you default.

Foreclosure - If you have previously defaulted on a primary residence, an FHA insured mortgage will be available as long as the foreclosure or deed-in-lieu of foreclosure was not within the last 3 years. This rule is somewhat flexible as well. If there were extenuating circumstances causing the foreclosure that are explainable it is possible to waive the strict 3-year rule.

Chapter 7 bankruptcy - If you have filed for bankruptcy under chapter 7 an FHA loan may be available if the discharge date is 2 years old (Not the filing date). You must also give a complete and detailed explanation regarding the bankruptcy as well as prove employment and financial responsibility (paying debts on time over the last 2 years)

Chapter 13 bankruptcy - If you have actively paying on a chapter 13 bankruptcy for at least 1 year, you may very well be considered for an FHA loan. What you'll need in this case is the court trustee's written approval move forward with the loan. Of course you'll still need to prove income, employment and creditworthiness as well as complete and detailed explanation regarding the bankruptcy.

Keep in mind FHA doesn't actually make the loans, they just insure the lenders who make the loans. This means that there may be very minor variances in qualifications but you can generally assume consistent basic program guidelines from lender to lender.

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