As long as you satisfy the applicable waiting period, you are eligible to apply for any type of loan following a bankruptcy.

Can You Get A Home Mortgage After Bankruptcy?

Yes, it is possible to obtain a home mortgage after bankruptcy. There are no permanent rules in place that prevent you from obtaining a specific type of loan because you’ve gone through a bankruptcy. The next steps you need to take will vary depending on the type of bankruptcy you filed, the details of your individual circumstances, and the type of loan you are seeking.

What’s The Difference Between Chapter 7 And Chapter 13 Bankruptcy?

There are two main types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 7 bankruptcy, often referred to as total liquidation, involves the liquidation of your assets to pay off creditors. It forgives most or all of the outstanding debt. The exception to this is student loans, which are not automatically discharged during bankruptcy. You would have to ask the judge separately to discharge your student loans. This would require proving that you have suffered undue hardship.

Chapter 13 bankruptcy is a court-approved, three to five year, debt restructuring repayment plan for consumers with a steady income and assets. Some debts may be paid in full, while others may be paid partially or not at all, depending on the debtor’s ability to afford it. In essence, Chapter 7 provides a debt wipeout, while Chapter 13 involves a structured repayment plan.

How long after bankruptcy can you get a home mortgage?

After completing a bankruptcy, trying to obtain a loan to buy a home will require more down payment and ask higher interest rates. For all your standard loans: conventional, FHA, VA, or USDA loans, there will be a waiting period of one to four years depending on the lender. The specific waiting periods will vary based on details of the bankruptcy you filed. Let’s explore the waiting periods for type of loan.

Conventional loans waiting period after chapter 7 bankruptcy – For conventional loans, individuals who have undergone Chapter 7 bankruptcy must wait a minimum of 4 years after their bankruptcy to be eligible. This waiting period allows time for credit rebuilding and demonstrating to lenders that they are a responsible borrower ready for a mortgage. While the waiting period can be frustrating, it is crucial to take this time to organize finances and prepare for homeownership.

Government loans waiting period after chapter 7 bankruptcy – Government-backed loans have more flexible waiting periods. To qualify for a USDA loan, a waiting period of 3 years is required after discharge of the bankruptcy. For FHA and VA loans, the waiting period is reduced to 2 years after the bankruptcy’s discharge.

Conventional loans waiting period after chapter 13 bankruptcy – If your bankruptcy is discharged, the waiting period is 4 years from the filing date.

Government loans waiting period after chapter 13 bankruptcy – Government-backed loans, such as USDA, FHA, and VA loans, have a 1-year waiting period after a Chapter 13 bankruptcy is discharged.

If you have completed your waiting period after a bankruptcy and feel ready to begin your home buying journey, there is financial help available. You can qualify for housing grants to come up with your down payment and closing costs. Housing Grants are available in all 50 states, start your free search here to see what assistance is provided in the area you want to move or live.

How to get a mortgage after bankruptcy?

1. Re-establish your credit – Having a bankruptcy listed on your credit report will lower your overall score. If your score falls below 580 points you are not likely to get any loan but a credit repair plan from a nonprofit credit counselor can help with that.
2. Collect your bankruptcy documents – Many lenders will request to see paperwork related to your bankruptcy. This information helps them assess if enough time has  passed since your bankruptcy completion.
3. Be ready to address any discrepancies in your credit report – If your credit report still reflects outstanding balances for accounts that were discharged in bankruptcy, you may need to present all of your schedules to the lender as evidence that those accounts were included in the bankruptcy.
4. Limit credit usage while being sure to make timely payments on any existing obligations. Opening a small secured credit card and consistently paying them off can demonstrate renewed ability to handle credit responsibly.
5. Identify your discharge date – Within your bankruptcy paperwork, there are several dates mentioned, but the most crucial one for obtaining a mortgage after bankruptcy is your discharge date. This particular date marks the official completion of your bankruptcy process and serves as the starting point for calculating the waiting period required.
6. Select the appropriate program based on your eligibility – It is crucial to align your credit score and waiting period with the suitable loan program. For instance, if you possess a credit score of 600 and it has been two years since your Chapter 7 bankruptcy discharge you can choose between an FHA, USDA, or VA loan.
7. Explore different lenders – Certain mortgage companies impose additional criteria for borrowers who have a bankruptcy in their credit history. It may be necessary to shop around to find a lender with a history of originating home loans for individuals with bankruptcy records.
8. Offer additional evidence of your readiness to repay a mortgage – Anticipate the need to draft letters of explanation and clearly communicate to the underwriter why you are prepared to pursue a mortgage after experiencing a bankruptcy. Lenders may require additional reassurances that the circumstances leading to your bankruptcy are unlikely to recur.

How long does it take to rebuild credit after bankruptcy?

A Chapter 7 bankruptcy will remain on your credit report for 10 years, whereas a Chapter 13 bankruptcy will stay on your credit history for 7 years. If you are paying all bills on time and taking some extra steps like maintaining a secured credit, the credit rebuilding process could take 18 to 24 months after bankruptcy. Not being active in a credit repair plan might result in the recovery being spread out over several more years.

What is the most popular loan type for individuals who have declared bankruptcy?

FHA loans are a good option after bankruptcy because they allow you to buy a home with a credit score as low as 580 points. Compared to other types of home loans, FHA loans also have shorter waiting periods.