How Long After Bankruptcy Can I Get A Mortgage?
It’s important to know that filing for bankruptcy does not permanently close the door to homeownership. If you have filed for bankruptcy, or are thinking of filing for bankruptcy, you should know that with time, effort, and professional guidance, you can rebuild your credit and qualify for a mortgage again.
This blog explains how bankruptcy affects your ability to get a mortgage, the waiting periods for different loan types, and how a mortgage attorney can help you navigate the process.
Can you get a mortgage after bankruptcy?
Yes, you can get a mortgage after bankruptcy, but it requires patience and a strategic approach to rebuilding your financial profile. While bankruptcy remains on your credit report for several years – typically seven to ten years, depending on the type – lenders do not expect you to wait that long to reapply for a mortgage. Instead, lenders impose specific waiting periods and requirements to ensure you have regained financial stability.
To qualify for a mortgage post-bankruptcy, you will need to improve your credit score, meet the minimum waiting periods established by the type of loan you are seeking, and demonstrate a reliable income and financial responsibility.
Why do you need to wait to get a mortgage after bankruptcy?
Many people ask why there is a waiting period to get a mortgage after bankruptcy. Traditionally, the waiting period after bankruptcy has served two primary purposes. It allows time to rebuild your financial health and gives lenders confidence in your ability to repay a loan.
Impact of filing for bankruptcy on credit score
One of the immediate consequences of filing for bankruptcy can be a reduction in your credit score. Bankruptcy signals financial distress to lenders, which can make you seem like a high-risk borrower. Sometimes, a person’s credit score can drop by 100 - 200 points, depending on their credit history and history prior to filing for bankruptcy.
Rebuilding your credit post-bankruptcy is essential, as most lenders require a minimum score for mortgage approval. To rebuild your credit score, you should make payments on time for all bills and debts. You should also use secured credit cards or a credit-builder loan if needed. Additionally, you should keep your credit utilization below 30% if possible.
Meeting lender requirements
Mortgage lenders want assurance that you can manage debt responsibly post-bankruptcy, which is why they impose specific waiting periods and conditions, such as maintaining steady employment, saving for a down payment, and meeting minimum credit score thresholds.
Fulfilling these requirements not only improves your chances of approval but also helps secure better interest rates.
Waiting periods for different types of loans
The waiting period required before you can apply for a mortgage varies based on the type of loan you are seeking and whether you filed for Chapter 7 or Chapter 13 bankruptcy.
FHA Loan
The Federal Housing Administration (FHA) offers loans with lenient requirements, making them a popular choice for post-bankruptcy borrowers.
If you filed Chapter 7 bankruptcy, you must wait at least two years after the bankruptcy discharge date.
If you filed Chapter 13 bankruptcy, you can apply one year into your repayment plan with court approval or immediately after discharge.
In both cases, you must demonstrate improved credit management and meet the FHA’s minimum credit score requirement of 580.
USDA Loan
The U.S. Department of Agriculture (USDA) offers loans for low- to moderate-income buyers in eligible rural areas.
If you filed Chapter 7 bankruptcy, the waiting period is three years after discharge.
If you filed Chapter 13 bankruptcy, you can qualify after one year of on-time payments with court approval.
It’s important to note that USDA loans also require a credit score of at least 640 and proof of income stability.
VA Loan
Veterans Affairs (VA) loans are available to eligible military members, veterans, and their families, offering favorable terms and no down payment requirement.
If you filed Chapter 7 bankruptcy, the waiting period is two years after discharge.
If you filed Chapter 13 bankruptcy, you can qualify after one year of on-time payments in your repayment plan.
It’s important to note that VA loans do not have an official minimum credit score requirement, however, most lenders prefer scores of 620 or higher.
Conventional Loan
It’s important to understand that conventional loans are not backed by government agencies and typically have stricter requirements.
If you filed Chapter 7 bankruptcy, the waiting period is four years after discharge.
If you filed Chapter 13 bankruptcy, you must wait two years after discharge or four years if the case was dismissed without discharge.
Conventional loans generally require a credit score of 620 or higher, though scores above 700 improve your chances of approval and better interest rates.
How can a mortgage attorney help you?
Navigating the path to homeownership after bankruptcy can be complex and challenging. A mortgage attorney plays a crucial role in ensuring the process is smooth and aligned with your long-term financial goals.
First, a mortgage attorney has invaluable expertise in bankruptcy and mortgage laws. An experienced mortgage attorney understands the legal intricacies of bankruptcy and mortgage regulations. They can provide guidance on when to apply for a loan and which type of mortgage is best suited for your financial situation.
If you encounter obstacles in meeting lender requirements, a mortgage attorney can negotiate on your behalf to secure more favorable terms or advocate for exceptions based on your circumstances.
A mortgage attorney also ensures that loan agreements are fair, transparent, and free of predatory terms. They’ll help you avoid pitfalls that could lead to financial strain in the future.
If disputes arise during the mortgage application process a mortgage attorney can act as your advocate and resolve issues efficiently.
It’s important to know that filing for bankruptcy does not mean you cannot own a home again. By understanding the waiting periods, rebuilding your credit, and seeking professional guidance from a mortgage attorney, you can position yourself for success. Each loan type offers a different timeline and set of requirements, but with dedication and strategic planning, homeownership is well within reach.
If you’re ready to explore your options and begin the journey toward securing a mortgage after bankruptcy, contact DebtStoppers today for a free consultation.
Our team of experienced attorneys specializes in bankruptcy and mortgage law, offering personalized guidance to help you achieve your financial and homeownership goals.
