Getting a Mortgage After a Bankruptcy is Not Impossible
Filing for bankruptcy doesn’t have to stop your dream of being a homeowner. Lenders have eased the requirements to allow borrowers that have filed for bankruptcy to purchase a home sooner than in the past. Getting a mortgage after a bankruptcy is not as difficult as many may think.
On average, the waiting period to get a mortgage after bankruptcy is 2 years. Below are details about common loans and their eligibility requirements for borrowers that have filed bankruptcy.
Federal Housing Authority (FHA) Loan
An FHA loan is a federally insured loan that’s attractive to first time home buyers or those with little cash to put down. FHA loans offer the ability to put down as little as 3.5%. The credit score requirement with an FHA loan is also more liberal than a conventional loan.
After a Chapter 7 Bankruptcy Discharge
In most cases, you’ll need to wait two (2) years from the date of your discharge before you’ll qualify for a mortgage. A discharge date is different from your filing date; the court will send you discharge paperwork before the case closes.
- If you’ve opened new accounts after the bankruptcy, you’ll have to meet minimum credit score requirements.
- In contrast, FHA has another rule that you can avoid credit score requirements by not opening any new accounts after bankruptcy
- A 12-month exception will speed up the process if you can prove that you filed for bankruptcy through no fault of your own and you’ve handled your accounts responsibly after bankruptcy.
After You’ve Filed for Chapter 13 Bankruptcy
Filing for Chapter 13 Bankruptcy is a 3-to 5-year process but you can purchase a home during that time if:
- You’ve paid 12 months of plan payments
- You can demonstrate that the reason you filed for bankruptcy is unlikely to happen again.
- Most important, the court must approve your request to purchase a house with an FHA loan.
United States Department of Agriculture (USDA) Loan
USDA Loans offer low-interest, no down payment loans for low- and middle- income borrowers that are willing to purchase in rural communities. Borrowers will be eligible for this loan three (3) years after discharge from Chapter 7 bankruptcy – and may qualify as soon as 12 months after discharge if they can prove the bankruptcy was beyond their control.
A Chapter 13 bankruptcy filer can apply after 12 months of successful plan payments or sooner if proving exceptional circumstances.
Veteran’s Affairs (VA) Loan
The VA loan is a benefit given to veterans to help with their housing needs. The VA considers your credit re-established after bankruptcy when you’ve had two (2) years of clean credit, however, lenders that participate in VA lending may require a specific credit score. Even though a bankruptcy or foreclosure will not automatically disqualify you from a VA loan, you will first have to pay back any money owed if you previously purchased a home with a VA loan and lost it due to foreclosure.
Conventional loans are not insured by the government and generally, down payments and credit scores are higher than those required by FHA. These loans have the longest waiting period and, depending on your circumstances, you’ll wait two (2)- to four (4) years as follows:
- Chapter 7 or 11 Bankruptcy: you’ll be eligible two (2) years after the discharge if the bankruptcy was beyond your control or 48 months if the bankruptcy was due to financial mismanagement.
- Chapter 13 Bankruptcy: You’ll need to wait 24 months after receiving your discharge or 48 months after a dismissal plan.
Feel free to reach out with questions! Getting a mortgage after a bankruptcy can be done with the right preparation. We are here to help you get into a home as quickly as possible. Furthermore, the pre-approval process is easy.
Kristina L. Refsbeck