Qualifying for a Home Loan During or After Bankruptcy
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Can You Still Get a Home Loan if You’ve Declared Bankruptcy?
Bankruptcy is a powerful tool for people who find themselves in an untenable financial situation. Bankruptcy wipes away debt and provides a clean slate to begin rebuilding your financial life, but it can also be quite nerve-wracking to consider the long-term ramifications. For example, many believe that when you declare bankruptcy, you cannot qualify for a home loan for up to ten years afterward. While it’s true bankruptcy can make it more difficult to buy a home, the rules for home loan qualification are more lenient than you may realize.In this article, we’ll discuss how declaring bankruptcy can affect your ability to qualify for a home loan. So, if you’re interested in buying a house after filing for bankruptcy, read on and learn what your options are.
Does Bankruptcy Make It Impossible to Get a Home Loan?
Not necessarily. The more recent your bankruptcy, the more likely it will prevent you from getting a home loan. However, if certain thresholds of time have elapsed since your bankruptcy, your application will be considered. In other words, if it’s been years since your bankruptcy and you’ve maintained a stable credit history since then, you shouldn’t let bankruptcy dissuade you from applying.
How Does Bankruptcy Affect the Home Loan Process?
When a mortgage company receives a mortgage application, that information goes through a process called underwriting. Underwriting is not the same for all mortgage companies, but most lenders follow the underwriting guidelines from the government-sponsored lenders Freddie Mac and Fannie Mae.
Underwriting is essentially a check-off sheet and bankruptcy is a single line item. For lenders, it’s an important consideration, but it’s far from the only consideration. Also, there are two types of bankruptcy that most people use: Chapter 7 and Chapter 13. When applying for a mortgage or home loan, there are slight differences in how Chapter 7 bankruptcy and Chapter 13 bankruptcy are viewed.
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Can I Get a Mortgage After Chapter 7 Bankruptcy?
Yes, it’s possible to get a mortgage after Chapter 7 bankruptcy, but there are specific guidelines and waiting periods you need to consider. Typically, you’ll need to wait at least two years from the discharge date of your Chapter 7 bankruptcy before being eligible for a conventional mortgage. However, some lenders may offer FHA or VA loans with shorter waiting periods.
During the waiting period, it’s crucial to work on rebuilding your credit and maintaining a positive financial profile. Lenders will assess your creditworthiness based on factors such as your credit score, payment history, and overall financial stability.
Keep in mind that individual lenders may have their own requirements, so it’s essential to shop around and find a lender willing to work with your unique financial situation. Additionally, you may be asked to provide a reasonable explanation for the circumstances that led to your bankruptcy.
Here are some tips on how to qualify for a mortgage after a Chapter 7 bankruptcy:
- Most lenders require a waiting period of one to four years after your bankruptcy discharge
- Build back good credit after your bankruptcy discharge by making on-time payments on any loans or credit cards you have
- Monitor your credit history so you’re aware of any changes or surprises
- Save as much as possible so you can make a larger down payment and need to borrow less
- Consider special programs like FHA loans, USDA loans, and VA loans if you qualify – all have shorter waiting periods than conventional loans, which usually require a two to four-year waiting period, and can require up to a seven year waiting period depending on circumstances
Can I Get an FHA Loan After Chapter 13 Bankruptcy?
Yes, you are eligible for an FHA loan after a Chapter 13 bankruptcy, but there are specific conditions you need to meet. Typically, you’ll need to wait at least two years from the discharge date of your Chapter 13 bankruptcy before applying for an FHA loan. Additionally, you must have re-established good credit and demonstrated responsible financial behavior during that waiting period.
Generally, it’s easier to obtain a home loan after Chapter 13 bankruptcy than it is after Chapter 7. Chapter 13 is a reorganization bankruptcy that stays open for up to five years while a person repays some of the debts. Our firm has recently had several clients obtain a mortgage after only one year. They had to demonstrate the Chapter 13 payment history to prove that all Chapter 13 payments were made on time each month. If you file a Chapter 13 and want to qualify for a mortgage, you must make all of the Chapter 13 payments on time. It’s crucial to show a consistent and on-time payment history for any debts incurred after the bankruptcy. Lenders will also consider factors such as your debt-to-income ratio and overall financial stability.
Remember that while FHA loans may be an option, individual lenders may have their own requirements, so it’s essential to shop around and find a lender willing to work with your financial history. If you have any other questions or need further clarification, feel free to ask.
Here are some additional tips on how to qualify for a home loan after a Chapter 13 bankruptcy:
- FHA, USDA, and VA loan programs let you apply just one year into your repayment program
- Conventional loans through Freddie Mac and Fannie Mae still require a two-year waiting period after your loan has been discharged
- Maintain good credit post-bankruptcy by making on-time payments on credit cards or other loans; this will increase the likelihood of getting approved
- If extenuating circumstances like severe illness or disability, layoffs, or death of the primary wage-earner caused your Chapter 13 bankruptcy, they may be considered
Questions About Qualifying for a Home Loan During or After Bankruptcy?
Underwriting requirements can change at any time, but the bottom line is that people who have debt problems can usually qualify for a mortgage quicker after filing either a Chapter 7 or Chapter 13 than they would if they had not filed any type of bankruptcy.
If you live in Oregon or Washington and have more detailed questions about this, call OlsenDaines today!Back to Bankruptcy Attorney