A Quick Guide to Buying a House After Filing Bankruptcy

If you are wondering how long after filing for bankruptcy you can buy a house, we have outlined some great bankruptcy home loans you can get.

It might be challenging, but it is not impossible! Let’s check them out here.

How Long After Bankruptcy Can I Get a Mortgage?

The best time to apply for a mortgage after filing for bankruptcy will mostly rely on the kind of program you’re thinking about.

After filing for bankruptcy, non-qualified (non-QM) mortgage programs may provide instant access to bankruptcy home loans for borrowers who can afford higher interest rates and greater down payments.

Different loan types have specific waiting periods post-bankruptcy:

• Conventional: 4 years (2 years with extenuating circumstances) for Chapter 7, 2 years from discharge for Chapter 13.
• FHA: 2 years (1 year with extenuating circumstances) for Chapter 7, 1 year for Chapter 13.
• VA: 2 years for both Chapter 7 and Chapter 13.
• USDA: 3 years for Chapter 7, 1 year for Chapter 13.

Recognize the differences in waiting periods based on whether you filed for Chapter 7 or Chapter 13 bankruptcy, adapting your expectations accordingly.

Mortgage Options After Bankruptcy: What You May Qualify For

There are some limitations to the type of bankruptcy home loans you can qualify for.

1. Conventional Loan

Conventional loans are a good option for those who want to become homeowners again because they usually have a waiting time of two to four years after filing for bankruptcy. Even with more stringent credit score standards, conventional loans are still a sensible option for those who have completed bankruptcy because of the possibility of smaller down payments.

Requirements:

• Four-year waiting period since discharge of Chapter 7 bankruptcy or Chapter 13 dismissal.
• Two-year waiting period after discharge of Chapter 13 bankruptcy.
• Two-year waiting period after discharge if extenuating circumstances are documented.
• A minimum credit score of 620.
• 3% minimum down payment.
• Re-established credit.

Pros:

• Higher credit score threshold compared to some other loan types.
• Lower down payment requirement compared to traditional mortgages.

Cons:

• Longer waiting period than non-QM loans.
• Stricter credit score requirements.

2. FHA Loan

For those who need to reconstruct their lives after filing for bankruptcy, the Federal Housing Administration-insured FHA loan offers a viable choice. FHA loans are renowned for having more accommodating qualification requirements, providing people with financial difficulties with an accessible route to bankruptcy home loans.

Requirements:

• There is a two-year standard waiting period for Chapter 7 bankruptcy.
• One-year waiting period for extenuating circumstances.
• Minimum credit score 580 (500-579 permitted with a 10% down payment).
• 3.5% minimum down payment (10% if credit score is between 500 and 579).
• Permission from the bankruptcy court to apply for a mortgage if still in repayment.

Pros:

• Lower credit score requirements compared to conventional loans.
• More flexible down payment options, including a minimum of 3.5%.

Cons:

• The waiting period still applies, though shorter than some conventional loans.
• FHA loans may require mortgage insurance, adding to overall costs.

3. VA Loan

A VA loan, backed by the U.S. Department of Veterans Affairs, is a valuable option for those with military service, including individuals who have faced bankruptcy. Designed to support veterans, service members, and their families, VA loans offer more lenient qualifying guidelines, providing an opportunity for homeownership post-bankruptcy.

Requirements:

• There is a two-year standard waiting period for Chapter 7 and Chapter 13 bankruptcy.
• Veterans with a VA loan discharged in a Chapter 7 bankruptcy should confirm eligibility for a no-down payment loan.
• There is no minimum credit score requirement (though many lenders prefer a 620 score).
• There is a two-year waiting period for standard eligibility and one year for extenuating circumstances.
• No minimum down payment is required.

Pros:

• No down payment is required in many cases.
• Lenient credit score requirements.

Cons:

• The waiting period still applies, though shorter compared to some conventional loans.
• Bankruptcy may affect entitlement, potentially requiring a down payment.

4. USDA Loan

For homebuyers in eligible rural areas—including those who have filed for bankruptcy—a USDA loan, underwritten by the U.S. Department of Agriculture, offers a competitive alternative. USDA loans provide a way to accomplish homeownership objectives for those who have filed for bankruptcy, emphasizing encouraging homeownership in certain areas.

Requirements:

• There is a three-year standard waiting period for Chapter 7 bankruptcy.
• A two-year waiting period is possible with proof of extenuating circumstances.
• There is no minimum credit score requirement (though many lenders prefer a 640 score).
• Three-year waiting period for standard eligibility, two years with proof of extenuating circumstances.
• No minimum down payment is required.
• Income and rural location limits apply.

Pros:

• No down payment is required in many cases.
• Favorable terms with fixed-rate mortgages and 30-year terms.

Cons:

• The waiting period still applies, though shorter compared to some conventional loans.
• Limited to qualifying rural areas, restricting property location.

How to Get a Mortgage After Bankruptcy?

Here are the steps to getting bankruptcy home loans!

1. Gathering Necessary Bankruptcy Documentation:

Gather the necessary documentation, such as dismissal or bankruptcy discharge documents, to show that the bankruptcy procedure is over.

2. Cleaning Up Credit Reports:

Make sure your post-bankruptcy financial situation is fairly reflected in your credit reports. Resolve any disparities and demonstrate prudent credit management.

3. Determining Discharge or Dismissal Date:

Find out the official date of your bankruptcy dismissal or discharge, which is important for determining your eligibility for certain lending programs and waiting periods.

4. Choosing the Right Loan Program:

Choose a loan option that fits your waiting time and credit score. Consider elements like the waiting period, eligibility requirements, and down payment.

5. Shopping Lenders for Bankruptcy Home Loans:

To ensure you have access to various possibilities, look through many lenders to locate a loan officer with experience in originating house loans for bankruptcy.

6. Providing Assurance to Lenders:

Provide underwriters with letters of explanation and assurance detailing the efforts to manage finances after filing for bankruptcy. Assure lenders that the mortgage repayment won’t be jeopardized by events leading to bankruptcy.

Conclusion

It takes careful planning to successfully get a mortgage after filing for bankruptcy: assembling supporting papers, improving credit reports, and matching up with the appropriate lending program. People can confidently pursue homeownership by carefully managing this procedure, demonstrating that prior bankruptcy doesn’t impede future financial milestones.