Mortgage qualifying after a major disruption: bankruptcy
For homebuyers who have a bankruptcy filing in their past, there is good news: this event will not keep them out of the housing market forever. In fact, recovery from a bankruptcy can be as soon as 2-3 years after the discharge date. Waiting periods vary depending on which of the two types of personal bankruptcy was filed: Chapter 7, in which the borrower cancels all allowable debts, and Chapter 13, in which the borrower enters into a structured repayment of debts. A Chapter 7 bankruptcy requires a longer wait before mortgage eligibility is restored. Here are the required waiting periods after each type of bankruptcy for various loan programs:
For Conventional Loans – Three years from the discharge date of a Chapter 7 (with 20 percent down payment), and two years from the discharge date of a Chapter 13. However, if there are extenuating circumstances that were beyond the borrower’s control that led to the bankruptcy, it is possible to obtain a conventional mortgage two years after the discharge date of a Chapter 7. One caveat: If a borrower filed a Chapter 13 and did not finish the restructured payments, there is a four-year waiting period from the time the court dismissed the bankruptcy before the borrower is eligible for a conventional mortgage.
For FHA loans – Two years from the discharge date of a Chapter 7, with the possibility of only a one-year wait if the Chapter 7 event occurred due to circumstances beyond the borrower’s control. A person who has filed a Chapter 13 is actually eligible (with the court’s permission) to obtain an FHA loan while still in the bankruptcy, as long as the first 12 payments to the bankruptcy court have been paid on time.
For USDA Loans – Three years from the discharge date of a Chapter 7 (no exceptions), and the same eligibility as FHA grants for a Chapter 13—with the court’s permission, a USDA loan can be obtained while still being in a Chapter 13.
For VA Loans – Two years from the discharge date of a Chapter 7, and the same eligibility that FHA grants for a Chapter 13—with the court’s permission, a VA loan can be obtained while still being in a Chapter 13.
For Jumbo Loans – A minimum four-year waiting period for either a Chapter 7 or Chapter 13 bankruptcy, and the borrower’s credit scores must have recovered above a 720 threshold.
With the above timelines in mind, don’t forget that recovering from a bankruptcy also means that you need to re-establish your credit immediately—not wait 2-3 years to start that process.
I welcomes questions or comments, and am more than happy to help with the credit recovery process and review your situation to determine when your mortgage eligibility will return. I can be reached at 864-235-9596 or via email at Mark@TheGreatestRates.com.
Or Text Me Now! 864-430-4856
Copyright: Preferred Financial Services, Greenville, SC / NMLS #192279 / email: mark@thegreatestrates.com / phone: (864) 235-9596|Disclaimer|Terms & Conditions
