Qualifying for a Home Loan During or After Bankruptcy

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The primary reason people are hesitant to file for bankruptcy is because they believe the bankruptcy will make it impossible to qualify for a home loan for up to 10 years. Eliminating the ability to purchase a home is a legitimate concern, but the rules for qualifying for a home loan are much better than most people realize.

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 most of the underwriting guidelines from Freddie Mac and Fannie Mae which are government-sponsored lenders.

Underwriting is essentially a check-off sheet – the lender will give a person a mortgage if all of the boxes on the sheet can be checked off. Therefore, in order for a person who has filed bankruptcy to qualify for a regular mortgage, he or she needs to have the bankruptcy line item checked off.

Currently, the check-off box for Chapter 7 is two years. That means that if a person applies for a mortgage two years after filing for Chapter 7 and meets the other underwriting requirements; he or she will be approved for a mortgage. Two years is a pretty short amount of time. Usually, the mistake most people make is waiting too long to get Chapter 7 filed. The two years does not start until the case is filed.

Chapter 13 is different. Chapter 13 is a reorganization bankruptcy that stays open for up to 5 years while a person repays some of the debts. I have recently had several clients obtain a mortgage after being in the case for only 1 year. In order to obtain the mortgage, they had to show 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, it is essential you make all of the Chapter 13 payments on time.

Can You Qualify for a Home Loan 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 had they not filed any type of bankruptcy.

If you live in Oregon or Washington and have more detailed questions about this, feel free to call OlsenDaines at 1-855-GET-HELP. 855-438-4357.