Mortgage after Bankruptcy: You May Qualify Sooner than You Think


BY The Lenders Network

mortgage after bankruptcy

4 minute read

If you’ve filed for bankruptcy you have to wait to get a new home loan.

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

In this article we’re going to discuss the bankruptcy waiting periods for different types of mortgage loans.

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Chapter 7 Waiting Periods

A waiting period is the amount of time after a bankruptcy has been discharged, or dismissed you have to wait to be eligible for a mortgage.

If you have filed for a chapter 7 bankruptcy then the following waiting periods apply

It may be possible to qualify sooner if you had extenuating circumstances that led to a significant decrease in income that led to the bankruptcy. Such situations include a loss of income by at least 25%, illness and medical issues, laid off or fire from employment.

Chapter 13 Waiting Periods

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

Self Employed Borrowers with Chapter 11 Waiting Period

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

Waiting Period when Bankruptcy includes a Foreclosure

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

Foreclosure Waiting Periods

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

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

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

Waiting Period with Extenuating Circumstances

Foreclosure with Extenuating Circumstances Waiting Periods

  • FHA loan: 1 year
  • VA loan: 1 year
  • USDA loan: 1 year
  • Conventional loan: 3 years

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

  • FHA loan: 1 year
  • VA loan: 1 year
  • USDA loan: 1 year
  • Conventional loan: 2 years

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Rebuild 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 just wait out the waiting period and go get a mortgage. Lenders will want to see that you have re-established credit that is positive since the bankruptcy was filed.

Tips to Building Positive Credit

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 just 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 that is held until you pay off the loan.

Usually credit builder loans are around $1,000 and have a repayment period of 12-18 months.

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. 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

You should get a copy of your credit report from all three major credit bureaus. You can do this once a year for free on the Government website www.annualcreditreport.com.

Monitoring your credit is important as it will alert you of any changes on your report. There are a few companies that offer completely free credit monitoring and updated credit scores online, or with their app.

Credit Karma

Credit Sesame

Dispute Accounts with Credit Bureaus

When you file for bankruptcy your negative accounts are not wiped off your credit report. They remain on your report for up to 7 years with a note that says “included in bankruptcy”.

You can file a dispute for any account on your report with the three major credit bureaus. One 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.

I have seen many accounts that were included in a bankruptcy be removed from credit reports. Each negative item you’re able to remove should help improve your credit rating.