What Are Conventional Loans
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.
Buying A House After Chapter 13 Discharge
Unfortunately, those who have been in this situation will have to hold off on their home buying aspirations. The court requires you to wait a minimum of four years from your dismissal date before you can apply for a mortgage. If your Chapter 13 was discharged, the seasoning period is four years from your filing date and two years from your dismissal date.
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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Buying A Home Using Conventional Loans After Bankruptcy
Conventional loansthose made by banks and mortgage companies without government backingare often sold to the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation . Fannie Mae and Freddie Mac set borrower guidelines for the mortgages they’re willing to purchase. Although a lender might be more lenient in its qualification criteria, most private lenders will respect the guidelines to make their mortgages sellable. Here are the waiting periods after bankruptcy.
- Chapter 7 bankruptcy. If the bankruptcy were due to your financial mismanagement, you’d have to wait 48 months, but if the bankruptcy were out of your control, you’d be eligible after 24 months.
- Chapter 13 bankruptcy. You must wait 24 months after discharge. If the court dismisses your case without a discharge, the waiting period will increase to 48 months. If, however, you can show that you filed the case under extenuating circumstances, you’ll only have to wait 24 months.
- Multiple bankruptcy cases. If you’ve filed more than one bankruptcy in the last seven years, it will be five years before you’re eligible, or three years if you can show extenuating circumstances. But this is still shorter than the seven years Fannie Mae requires after a foreclosure.
Also, keep in mind that Fannie Mae expects you to work toward rebuilding your credit during the waiting period.
Get Mortgage Guidance From The Law Offices Of Kretzer And Volberding Pc Before Filing Bankruptcy
As we have demonstrated, the answer to the question of does bankruptcy clear mortgage debt is very often yes. When you are trying to figure out how to issues related to your mortgage and bankruptcy, you will need a lawyer with specific experience on bankruptcy in Texas and who has the right knowledge and resources to help you. Contact the Law Offices of Kretzer and Volberding P.C. today to discuss your bankruptcy concerns.
What About A Consumer Proposal
If youre looking for an alternative to filing for bankruptcy, then a Consumer Proposal is a great option particularly for those within your industry.
Considered to be less stringent than bankruptcy, it showcases that you have the income to be able to pay your debts off even if they are at a reduced rate.
This results in a likelihood that your license wont be called into question.
Through filing one of these, you can take advantage of benefits including the wiping of certain debts, you are able to retake control of your finances and you can budget more effectively while showing the FSCO that you have the motivation to repay what you owe.
Because of this, they treat them with less scrutiny.
Keep in mind, however, that youll still have to report that youve filed this.
What Lenders Will Approve A Loan During Chapter 13
VA, USDA, and, sometimes, FHA loans are available duringChapter 13 bankruptcy. Most major lenders are authorized to do FHA and VAloans. USDA mortgages are a little harder to find.
Remember that mortgage lenders can set their own lendingrules. Some may be more amenable to borrowers with Chapter 13 than others.
In addition, youll have better luck if youre notborderline meaning youre firmly eligible for the type of loan you want.
If youre right on the edge of qualifying forinstance, if your score is exactly 580, you have lower income, and you want anFHA loan it could be tougher to get approved.
Youll need to shop around and compare your options.
All mortgage borrowers should shop for their bestinterest rate. But for borrowers with Chapter 13 this is doubly important.
Youre not just shopping for a good deal youre shopping for a lender thats willing to approve you.
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Qualifying For A Mortgage After Bankruptcy
If you’ve filed for bankruptcy, you’re not alone. The American Bankruptcy Institute reported 789,222 personal bankruptcy filings in 2015. And here’s the truth: Many of the people behind these bankruptcies will one day be able to qualify for a mortgage and buy a home.
Bankruptcy does devastate your credit score, usually causing it to fall by 200 or more points. And depending on the type of bankruptcy you file, this negative mark will remain on your credit report for 7-10 years. So a bankruptcy filing will make qualifying for a mortgage difficult … at first
But if you’re patient, and you’re willing to make the financial decisions that will gradually boost your credit score, you will be able to qualify for a mortgage even with a bankruptcy in your past.
“The most important steps to get your credit back on track post-bankruptcy is to establish new credit with a good payment history,” said Jason Zimmer, owner of Parlay Mortgage & Property in Lockport, Illinois. “Bankruptcies will stay on your credit report for up to 10 years, but the damage they cause fades as each year passes.”
Getting New Credit After Bankruptcy
Itâs actually a lot easier than most people think to get after filing a bankruptcy. Itâs not unusual for people to receive credit card offers shortly after filing bankruptcy. It makes sense when you stop and think about it – one of the factors that goes into determining how credit-worthy you are is how much other debt you are currently carrying.
Once you receive a Chapter 7 discharge, all of the old unsecured debt is gone and so you have increased your ability to pay off any new debts. You do, of course, want to be mindful of your financial situation and make sure your monthly income is sufficient before taking on any new debt. And not all creditors will be quite as quick to offer a loan, especially if itâs for a significant amount like a home purchase.
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Tips To Earn A Mortgage Approval After Bankruptcy
If youre trying to get a mortgage after bankruptcy, the first thing youll need to do is get your credit score back on track. Theres no quick fix for rebuilding your credit after a bankruptcy, but your most recent actions have a more significant impact on your credit score than past negative events.
Keep these tips in mind to help your chances at mortgage approval.
Focus on improving your credit. Do what you can to improve your credit before applying for a mortgage after bankruptcy. Your credit score wouldve taken a hit, but you can improve it by paying your bills on time and keeping your credit utilization low. If you plan on getting a mortgage after a Chapter 13 bankruptcy, its crucial to follow your repayment plan as agreed.
Your credit score will play a significant role in your loan costs. Heres a quick look at how a difference in credit score can impact a $250,000 conventional loan with a 30-year term.
As the table illustrates, a 740 credit score can save you more than $68,000 over the life of a 30-year loan.
Apply for credit cautiously. While you may qualify for other forms of debt, such as credit cards or an auto loan, soon after bankruptcy, be cautious about taking on additional debt if you anticipate applying for a mortgage.
Do You Qualify For A Mortgage
Having a Chapter 13 bankruptcy in your credit history shouldntstop you from getting a mortgage.
You might even be able to buy a home duringChapter 13 if youre in good standing with your repayment plan and you qualifyfor the mortgage.
If youve been working hard to pay down debts andimprove your financial situation during Chapter 13, you might be able to get ahome loan a lot sooner than you think.
Step by Step Guide
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What Are The Mortgage Options Open To You After Bankruptcy
There is no barrier preventing a person from getting any particular type of mortgage loan in strictly technical terms or terms of legal stipulations. Bankruptcy does not pose as a hindrance to you in getting any kind of mortgage loan as long as they undergo the waiting period requirements. But to be honest, there are indeed certain types of mortgage loans that are more accessible than others for people with bankruptcy filing records.
How Foreclosure Prolongs A Mortgage Waiting Period
Sometimes a bankruptcy isnt the only financial setback a potential mortgage borrower is dealing with. The bankruptcy may have been preceded by foreclosure on a mortgage.
Having both a foreclosure and bankruptcy may prolong the mortgage process more than just a bankruptcy, and may add other requirements.
The following chart shows the length of time after a foreclosure a potential borrower may apply for a loan:
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What Happens To My Mortgage If I File Chapter 7
Chapter 7 bankruptcy is known as total, straight, or liquidation bankruptcy. It is a wipeout of much of your outstanding debt under the guidance of a court-appointed bankruptcy trustee, who manages your assets in relation to your creditors. As part of a Chapter 7 Bankruptcy filing, the bankruptcy trustee may force you to sell, or liquidate, some of your property to pay back the debt you have accrued, and this may include your home under certain circumstances.
Does the property you may have to sell in a Chapter 7 Bankruptcy include your home in Texas? If you file and qualify for Chapter 7 Bankruptcy, you will likely have the choice of keeping your home, provided you continue to make your mortgage payments. However, if you want to abandon your home, you also have the choice of stopping your mortgage payments, and bankruptcy discharge of mortgage debt related to your home loan will occur at the end of the case, meaning you will not have to pay any more payments.
The lenders security interest in the property, however, remains in full force and effect, so the lender will be able to foreclose on your home if you stop making payments, once the bankruptcy is over. So, in short, the answer to can I include my mortgage in bankruptcy is a yes. Your personal obligation to pay the mortgage can be discharged, just remember that the lender can enforce their rights and retake your home.
How Does It Work With A Chapter 13 Dismissal
When you go through a Chapter 13 bankruptcy, you make monthly payments over several years. If you fail to make the payments as agreed, the bankruptcy may be dismissed. In that case, you lose all the protection of a bankruptcy filing, and your creditors can go after you in court.
You may also receive a dismissal if you decide that you dont want to do the payment plan and withdraw your filing.
Conforming lenders treat dismissals of Chapter 13 bankruptcies more strictly than discharges. That is because, if you go through the entire five years and receive your discharge, you still have to wait another two years before you can get a conforming mortgage. That is a total of seven years form your filing date.
If you get part-way through and then withdraw your claim or receive a dismissal, Fannie Mae and Freddie Mac extend your waiting period to four years. They believe that this rule is more fair to those who stick out the entire Chapter 13 repayment period.
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How To Get A Mortgage After Bankruptcy
Getting a home loan after bankruptcy is possible, but it will require patience on your part. Youll also need to take steps to increase your chances of mortgage approval after bankruptcy.
A bankruptcy will lower your significantly which signals to creditors that you are a lending risk. And it will impact your score for years to come. A Chapter 7 bankruptcy remains on your credit report for up to 10 years, while a Chapter 13 remains for up to seven years.
While you dont need to wait for a bankruptcy to disappear from your credit report to get a mortgage, you must adhere to a waiting period before applying. How long youll have to wait depends on the type of bankruptcy you file, as well as the type of mortgage you plan to get. If extenuating circumstances are present such as a divorce, job loss, illness, death of a primary earner or other unforeseeable events you may qualify for a home loan sooner.
Heres a brief overview of how long youll need to wait to apply for a mortgage after Chapter 7 and Chapter 13 bankruptcy.
|No waiting period|
How Soon Can I Qualify For A Mortgage After Bankruptcy
Filing bankruptcy doesnt mean youll never qualify for a mortgage. One reason to file a bankruptcy case is to eliminate burdensome debt so you can get a fresh start. Some lenders, such as credit card and even certain car loan creditors, will take a chance on you right after you emerge from bankruptcy.
Mortgage lenders and guarantors want to ensure they wont compromise resources by lending to someone whos not ready for the responsibility of home ownership. Therefore, they usually wont approve loans right after the borrower gets a bankruptcy discharge. There could be a waiting period of up to 5 years.
Youll pay a higher interest rate, and the terms may not be as favorable as you like, but some for most former bankruptcy debtors. Mortgages are a different story.
During that waiting period, you must keep your new developing credit record clean. If you run into trouble, you might have to restart the clock. Every lender or guarantor has its own set of guidelines. If you are able to obtain a mortgage right away and that mortgage is foreclosed a year after your bankruptcy case is discharged, youll have another waiting period before you can qualify.
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