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Can You Get A Mortgage After Declaring Bankruptcy

What Are Conventional Loans

Mortgage After Bankruptcy

Conventional loans are those originated by banks, credit unions and online lending sources.

They are not guaranteed by the government, but they typically have the best interest rates and terms, which means lower monthly payments. The most common type of conventional mortgage is 30-year fixed-rate, which accounted for 79% of mortgages between 2019 and 2021, according to ICE Mortgage Technology.

Conventional loans require a credit score of 620 or higher. The higher the score, the better the terms. One of the biggest advantages is that a down payment of 20% means you dont have to pay private mortgage insurance, which can add thousands to a mortgage.

Even if you dont put down 20% at the closing, once the equity in the house reaches 20%, the PMI is dropped. With an FHA loan, it never drops, and you have to pay a one-time up-front premium of 1.75% of the base amount of the loan.

The waiting period for a conventional loan after bankruptcy is:

  • Chapter 7 Four years after discharge date
  • Chapter 13 Two years. If the case is dismissed, which happens when the person filing for bankruptcy doesnt follow the plan, its four years.

What Happens To Property You Owe Money On

Property that you own is subject to liquidation, which means that you must either pay back the money or sell it and use the proceeds to repay your creditors.

  • Your home: The good news is that you can keep your house if it is the mortgage debt and meet the filing income requirement. It doesnt matter who the mortgage is in your name with, be it a spouse or other family member. The house cannot have any second mortgages unless you are able to discharge both. If you have a first mortgage only, the house is exempt from liquidation in bankruptcy.
  • Car: You can keep your car and avoid liquidation as long as you have one secured loan on it. If the car is worth more than what you owe, or if it is a second car and not necessary for your job , the car can be sold to pay off the loan.
  • Other property: Any other property that you own, such as a boat or motorcycle, can be sold by your trustee to pay back some of your debt.

When you declare bankruptcy, there is a period of time that the court has to review all your paperwork and make sure everything is accurate. This process usually takes about four months, although it can vary if you have a complicated financial situation.

How Long Do I Have To Wait After Chapter 13 To Get A New Mortgage

Rocket Mortgage and other lenders may give you the option of getting an FHA or VA loan as long as the Chapter 13 bankruptcy is discharged or dismissed before you apply.

If you’re looking to apply for a conventional loan, it matters whether your bankruptcy was discharged or dismissed. In the event of a Chapter 13 discharge, the discharge date has to be more than 2 years prior to the date credit is pulled and more than 4 years since the filing.

If the bankruptcy was dismissed, theres a 4-year waiting period until credit can be pulled for a new conventional mortgage.

Finally, jumbo loans still have a 7-year waiting period before you can apply.

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Fannie Freddie And Ginnie

Most conventional loans in the United States are owned by or insured by the government-sponsored enterprises Fannie Mae, Freddie Mac, or Ginnie Mae. These backers have similar loan eligibility requirements for borrowers who have filed bankruptcy cases. These are guidelines. Your mortgage lender or mortgage broker can help you with the specifics.

In addition to a waiting period, these organizations require that borrowers demonstrate they have re-established credit after the bankruptcy.

Chapter 7: The waiting period is 4 years, or 2 years with extenuating circumstances . An example of extenuating circumstances would be a layoff and extended unemployment, or medical issues.

Chapter 13: The waiting period is 2 years from discharge and 4 years from dismissal, or 2 years from dismissal with extenuating circumstances.

If you have more than one filing within the past 7 years, the waiting period is 5 years from the most recent discharge or 3 years with extenuating circumstances.

Mortgage After Bankruptcy With A Mainstream Or Prime Mortgage Lender

Can i Get A Mortgage after bankruptcy?

With a prime lender, you will have the luxury of being able to purchase a home at the best rates available. In addition, a mainstream lender will allow you to use a down payment of as little as 5% of the purchase price of the home. One thing to note: if your down payment is less than 20% of the homes purchase price, lenders will require default insurance through either CMHC or Genworth the fee charged will be added to your mortgage amount .

In order to qualify with a prime lender after bankruptcy, you need to fulfill the following criteria:

1. The down payment must be from your own resources either in a savings account, an RRSP, investment account, and so on. As of February 16, 2016, you need to have at least 5% available for the first $500,000 of your purchase, 10% for any amount over $500,000. However, 10% of the purchase price is better, and will give you more options.

2. To work with a prime lender, you need to wait for a minimum of two years after dischargeof your bankruptcy. Please note that this is a best case scenario, not a sure thing. Each lender has their own criteria. A few will do a mortgage two years after, several more require three years, and some want you to wait five or six.

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Timing To Buy A Home After Filing Bankruptcy

You need to consider these factors before you start your house hunt:

  • Did you file a Chapter 7 bankruptcy? Your debt will be discharged, but you may face higher interest rates and difficulty finding a mortgage loan while you still have bad credit.
  • Did you file a Chapter 13 bankruptcy? You will have a repayment plan that must be repaid on schedule. Can you save a down payment while making these monthly payments?
  • Did you gain more credit card debt for a medical bill post-bankruptcy?
  • What home loans, interest rates, down payment, and credit score requirements does the mortgage lender require?
  • Do you have a down payment?
  • What type of loan do you want?

Mortgage After Bankruptcy With An Alternative Mortgage Lender Or B Lender

An alternative lender will work with you as early as one day after your bankruptcy discharge, and with little or no re-established credit. However, in exchange for this flexibility, what they will look for is the following:

1. Your down payment will need to be at least 20% of the purchase price of your home. If you have 25% down, or more, that will give you more options. In Mississauga, Etobicoke, and the Greater Toronto Area, this can be a sizeable chunk of cash, so youll want to be prepared.

2. Your costs will be higher with a B lender than with a mainstream lender. First, your interest rate will be a bit higher how much higher depends on the big picture of your overall financial situation, how large your down payment is, and how good your re-established credit is. You can expect to add at least one percentage point over mainstream rates, possibly more. Second, you can expect to pay a lender commitment fee typically around 1% of your mortgage value similar to the Genworth or CMHC mortgage insurance fee mentioned above. If your down payment is more than 20%, you might be able to add the commitment fee to your mortgage rather than paying this out of pocket, but this is up to the lender.

Keep in mind that your alternative mortgage lender or B lender is exactly that: an alternative, or a stepping stone to get you where you want to go.

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How Much Does My Credit Score Affect My Mortgage Refinancing Options

Your credit score is one of the most critical elements in mortgage refinancing. Lenders use your credit score to determine your risk andinterest rates. Unfortunately, after declaring bankruptcy, your credit score takes a significant hit. This means that lenders are lesslikely to offer mortgages.

However, you can improve your chances of mortgage refinancing after bankruptcy by re-establishing your credit. You can do this by opening aline of credit, for example, a credit card. Use at least two credit cards and pay all your bills on time to improve your credit score andqualify for mortgages.

Keeping Your Home With A Consumer Proposal

WHAT TO KNOW: Obtaining a mortgage after bankruptcy

If you have house equity and cannot afford to declare bankruptcy, a better option may be a consumer proposal. In a you could offer your creditors an amount that is even greater than your house equity, but you could pay it over a longer period of time , making the consumer proposal the most affordable option.

Returning to our previous example, if you have $10,000 in house equity and no other assets or surplus income, you could offer a consumer proposal of $12,000, or $200 per month for 60 months. The $12,000 offer is slightly more than the house equity, so it is possible that the creditors will accept your proposal. Its a good deal for you, because a monthly payment of $200 is affordable, and if your situation improves you can pay it off sooner.

In summary, it is possible to keep your mortgage and your house if you declare bankruptcy, but some advance planning is necessary, so talk to a today to review your options.

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Buying A House After Chapter 7 Bankruptcy

If you had a bankruptcy discharged a year ago or more, you might be starting to get your finances back in order. Maybe youre even thinking about buying a house.

The good news is that its possible to purchase a home following a Chapter 7 or Chapter 13 bankruptcy.

But theres a waiting period before you can take out a mortgage usually at least two years. And lenders will be looking closely at your credit score, credit reports, bankruptcy discharge details, and other factors to ensure you qualify.

Tread carefully after bankruptcy and take steps to improve your credit. With hard work and patience, youll eventually be able to get a home loan.

How To Get Approved For A Mortgage After Bankruptcy

With all of these types of loans, if your goal is to get approved for a mortgage after bankruptcy, it’s a good idea to focus on rebuilding your credit before applying. By doing so, you may increase your chances of getting approved and landing more favorable terms. Here are some tips to help you rebuild your credit:

  • Create a budget: Creating a budget involves calculating your expenses, determining your income, setting savings and debt payoff goals, and recording spending. A budget can help you stay on top of your spending and avoid getting into too much debt.
  • Pay your bills on time: This may seem like a no-brainer, but paying your bills on time is one of the easiest ways to rebuild your credit. Consider automating your payments if you tend to forget when they’re due.
  • Get a secured credit card: A secured credit card is typically easy to get and can help your credit as long as you pay your bills on time and in full every month. Make sure the credit card company will report your payments to the credit bureaus and show that you are a responsible borrower.

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Buying A House After Your Bankruptcy Case Will Probably Come Easier And Quicker Than You Think

By Carron Nicks

Eliminating debt by filing a bankruptcy case can make it easier for you to afford a home purchase, but it will also impact your ability to get a loan. So don’t plan on qualifying for a loan the day after your bankruptcy dischargemost lenders won’t be willing to take a chance on you immediately.

Even so, there’s a good chance you’ll qualify for a mortgage loan sooner than you think. Learn how the following will impact your ability to buy a house:

  • your post-bankruptcy credit score, and
  • qualification requirements of government and private lenders.

Respond To Lender Inquiries

Getting a Mortgage After Bankruptcy

Once you submit your preapproval application, the rest is in your lenders hands. Your lender will review your income, assets, debt and credit to see if you qualify for a mortgage. If you seem like a good candidate, your lender will send you a preapproval letter. You can use your letter to start shopping for a home.

Your lender might need to contact you to ask questions about items on your credit report. This is especially common after an adverse financial event like bankruptcy. Be honest and respond to your lenders inquiries quickly to improve your chances of approval.

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Waiting Periods When A Bankruptcy Includes Home Foreclosure

The foreclosure waiting period for a conforming loan is typically seven years. However, when bankruptcy includes your foreclosure, you may qualify for a shorter waiting period. The key here is knowing if your foreclosure occurred before or after your bankruptcy. Different rules apply depending on those dates.

You can find the foreclosure completed date on your countys website, which records all property sales, foreclosure or otherwise.

United States Department Of Agriculture Loan

Low- and middle-income borrowers willing to purchase a home in a rural community will benefit from this loan. It offers a low-interest, no down payment option for those who might not otherwise be able to qualify for conventional financing.

Applicants will be eligible for this loan three years after receiving a Chapter 7 discharge. However, if you qualify for the exceptional circumstances exceptionfor instance, by demonstrating that the bankruptcy was beyond your control and not a result of financial mismanagementyou might be able to qualify as soon as 12 months after the discharge.

A Chapter 13 bankruptcy filer can apply after 12 months of successful plan payments, or sooner on a showing of exceptional circumstances. To find out more, visit the United States Department of Agriculture Rural Development website.

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How To Get An Unsecured Loan After Bankruptcy

Getting approved for an unsecured personal loan after bankruptcy may take some time, but it is possible in certain situations if youre prepared to put in the effort. The first thing you need to do is review each of your credit reports from Experian, Equifax and TransUnion to make sure everything is correct. Verify that every debt involved in your bankruptcy has been properly updated to reflect its correct status. If you find any negative errors on your credit report, get them resolved prior to applying for an unsecured personal loan.

If you have some time before you need a loan, we recommend that you take steps to build your credit. The simplest approach is to make on-time payments on all of your bills. Late or incomplete payments can be reported to the credit agencies which can set your score back significantly. Additionally youll want to minimize your use of any existing credit lines that you have, as higher rates of credit usage can negatively impact your score. Generally speaking, the best way to improve your score is by staying out of trouble with creditors gradually over time your credit score should improve.

When you’re ready to apply, most lenders will request the following items:

  • Identification
  • Desired loan use
  • Desired loan term

Continue Paying Your Mortgage If You Want To Keep Your Home

How To Get A Mortgage After Bankruptcy

A bankruptcy discharge is designed to wipe out your personal liability for most types of debt. However, it doesn’t automatically eliminate liens from your property. In most cases, a mortgage lender’s lien survives bankruptcy. This means that if you want to keep your home, you must pay your mortgage during and after bankruptcy. But if you have a wholly unsecured second mortgage , you may be able to get rid of it in Chapter 13 bankruptcy .

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Keeping Your Payments Current

Under Canadian bankruptcy law a secured lender, like a mortgage holder, is not permitted to cancel their loan simply because you have declared bankruptcy. If you are up to date with your payments, you can continue to pay your mortgage, even while you are bankrupt.

However, if you are in arrears or , the mortgage holder is not required to allow you to continue with the mortgage. Even if you are not bankrupt, if you are in arrears the mortgage lender can start foreclosure proceedings and sell your house.

What About Chapter 13 What Happens With My Existing Mortgage

With a chapter 13 bankruptcy, borrowers will not lose their property. You will include details on how you plan on paying your mortgage in your repayment plan. In most cases, an automatic stay is issued once Chapter 13 is filed. An automatic stay means that creditors must stop collection efforts.

It was designed to temporarily halt foreclosure and stop repossession of homes regardless of the stage of the foreclosure proceedings. For homeowners with too much equity to qualify for a homestead exemption in their jurisdiction, this is an advantage of a Chapter 13 filing.

There are a couple of important caveats here: First, you have to stay current on any mortgage payments that are due after the filing. If youre behind on your payments, missed payments can be included in your reorganization plan, but you have to make sure all these debts are paid back by the end of your plan timeline.

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Guide To Buying A House After Bankruptcy

If youve had to declare bankruptcy, you may feel like youll never be able to get your finances in order again. And worse, you may feel like youll never have a house of your own again.

But the reality is that bankruptcy isnt a permanent mark on your financial record. Although your credit score will plummet when you declare bankruptcy, the Consumer Financial Protection Bureau found that those who declare bankruptcy often have higher credit scores when compared to those who try to work out difficult finances without resorting to bankruptcy.


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