How to Get a Mortgage after Bankruptcy


If you’ve filed for bankruptcy, there is a waiting period before you’re eligible for a home loan.

However, you may qualify for a mortgage much sooner than you think.

This article takes an in-depth look at how you can get a mortgage after bankruptcy and the waiting periods for each mortgage program by type of bankruptcy.

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Chapter 7 Bankruptcy Waiting Period

A chapter 7 bankruptcy is the most common type of bankruptcy individuals use. Chapter 7 bankruptcy is for people who have no way to repay their debts. It discharges your debts allowing you to start fresh.

Ch. 7 Waiting Periods:

  • FHA loan: 2 Years after the bankruptcy discharge date
  • VA loan: 2 Years after the bankruptcy discharge date
  • USDA loan: 3 Years after bankruptcy discharge date
  • Conventional loan: 4 Years

 

Extenuating Circumstances

It might be possible to qualify sooner if you had extenuating circumstances that led to the bankruptcy with the FHA back-to-work loan program. Such situations include a loss of income by at least 25%, illness and medical issues, natural disasters, or have been laid off.

Events that qualify as an extenuating circumstance

  • Divorce
  • Medical issues
  • Illness
  • Job loss or loss of income by 25%
  • Natural disaster

 

Waiting Periods with Extenuating Circumstances

Extenuating Circumstances Waiting Periods

  • FHA loan: 12 months
  • VA loan: 12 months
  • USDA loan: 12 months
  • Conventional loan: 24 months

 

Deed-in-Lieu of Foreclosure, Pre-Foreclosure, and Short Sale Waiting Periods

  • FHA loan: 12 months
  • VA loan: 12 months
  • USDA loan: 12 months
  • Conventional loan: 24 months

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Chapter 13 Bankruptcy Waiting Period

A chapter 13 bankruptcy is for people who have the income to repay at least a portion of their debts. It also can keep them from losing assets like their home. The court will instruct you n how much you owe each creditor and give you a payment plan to follow. When the payment plan is completed and the creditors are paid back the debts will be discharged.

Ch 13. Waiting Periods

  • FHA loan: Must be discharged/dismissed before application
  • VA loan: Must be discharged/dismissed before application
  • USDA loan: Must be discharged/dismissed at least 1 year before the application
  • Conventional loan: Must be filed 4 years before application and discharged/dismissed 2 years before the application

 

Chapter 11 Bankruptcy Waiting Period

Businesses and self-employed borrowers who file typically do so with a chapter 11 bankruptcy. The court will help businesses restructure their debts and obligations and put them on a payment plan they can afford. After the ch 11 has been dismissed or discharged the waiting period starts.

Waiting Period for Self-Employed Borrowers with a Chapter 11 Bankruptcy

  • FHA loans: Discharged/dismissed 2 years prior to application
  • VA loans: Discharged/dismissed 2 years prior to application
  • USDA loans: Discharged/dismissed 2 years prior to application
  • Conventional loans: Discharged/dismissed 4 years before application

 

Foreclosure Waiting Period

The waiting period after a foreclosure is typically longer than a bankruptcy. If you have had a foreclosure you will have to wait 3 years before becoming eligible for a home loan unless you’re a veteran who qualifies for a VA loan.

Waiting Period

If you have a foreclosure but no bankruptcy, the following waiting periods apply:

  • FHA Loans – 36 months
  • VA Loans – 24 months
  • USDA Loans – 36 months
  • Conventional Loans – 4 years from dismissal date

 

Bankruptcy Including a Foreclosure

The waiting periods for a bankruptcy change when a foreclosure is included in the bankruptcy.

Bankruptcy Including a Foreclosure Waiting Period

  • FHA loans: 3 years
  • VA loans: 2 years
  • USDA loans: 3 years
  • Conventional loans: 7 years

 

Bankruptcy Including a Deed-in-Lieu of Foreclosure, Pre-Foreclosure, and Short Sale Waiting Period

  • FHA loans: 3 years
  • VA loans: 2 years
  • USDA loans: 3 years
  • Conventional loans: 4 years

 

Rebuilding Your Credit After a Bankruptcy

A bankruptcy will stay on your credit report for up to 7 years after it is discharged. Your credit score takes a huge hit when you file for bankruptcy, but with time the bankruptcy has less weight on your score. If you’re looking to buy a home after you have filed for bankruptcy or had a foreclosure, you need to rebuild positive credit. It’s not enough to wait out the waiting period. Lenders will want to see that you have re-established credit that is positive post-bankruptcy.

Get a Secured Credit Card

Because it will be close to impossible to qualify for a credit card after you’ve filed bankruptcy, you should get a secured credit card to help you start building positive credit history.

A secured credit card works like a traditional unsecured credit card, except that you must make a deposit to cover the spending limit. For instance, if you get a secured card with a $500 limit, you will have to give the creditor $500 to hold until the account is closed or converted into an unsecured account.

Credit Builder Loans

A credit builder loan is a type of loan you can get at your local bank or credit union. You will need to deposit an amount into an account held until you pay off the loan. Usually, credit builder loans are around $1,000 and have a 12-18 months repayment period.

Become an Authorized User

If you have a friend or family member with a credit card in good standing, ask them to add you as an authorized user. An authorized user means you are allowed to use the account. They will provide a new card with your name on it, but the account owner can, and should, decline this option.

When you’re an authorized user on an account, the entire account history will show up on your credit report. FICO still factors authorized user accounts into their credit scoring algorithm.

Pay Your Bills on Time

This may go without saying, but paying your bills on time is the best thing you can do for your credit. Payment history accounts for 35% of your overall credit score. Late payments do significant damage to your credit score. Set up auto-pay to make the minimum monthly payment, so you make sure you never forget.

Monitor Your Credit

Monitoring your credit is important as it will alert you of any changes in your report. A few companies offer completely free credit monitoring and updated credit scores online or with their app.

 

Dispute Accounts with Credit Bureaus

You can file a dispute for any account on your credit report with the three major credit bureaus. Once a dispute is open, the credit bureau with contact the creditor to make sure the account is accurate. The creditor has 30 days to respond; if they don’t, it must be removed from your report.