How To Improve Your Chances Of Getting A Mortgage Loan After Bankruptcy
- Keep your new credit record spotless. Pay all bills on time and avoid racking up credit card debt. Also, check your credit record often to ensure it is accurate.
- Make a down payment. While down payments do not matter a great deal when applying for an FHA mortgage loan, applying with a decent down payment can only help your chances of getting approved for a mortgage after bankruptcy.
- Be honest and transparent. Get ready to answer questions regarding the circumstances of your bankruptcy. Lenders will ask what happened to make you file for bankruptcy, if you have established new credit, and whether you are currently behind in any of your billsincluding utility bills. You will also be asked to provide all paperwork and court orders related to your bankruptcy.
How Long After Filing Bankruptcy Can I Buy A House
Upsolve is a nonprofit tool that helps you file bankruptcy for free.Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we’ll never ask you for a credit card.Explore our free tool
In a Nutshell
Many people are concerned that filing bankruptcy will prevent them from buying a house in the future. The truth is, filing bankruptcy doesnât prevent you from buying a house.
Written byAttorney John Coble.
Many people are concerned that filing bankruptcy will prevent them from buying a house in the future. The truth is, filing bankruptcy doesnât prevent you from buying a house. A bankruptcy filing can be your first step toward home-ownership. Many real estate agents and mortgage brokers have relationships with bankruptcy attorneys. In some cases, you donât even have to wait until your bankruptcy is over before buying a home.
The factors that determine how soon you can buy a house after filing bankruptcy include which type of bankruptcy you choose, the particular lender, and your credit report. Before going further, here is a brief description of the two types of consumer bankruptcies available for you.
Bank Turndowns : Can You Still Qualify For A Home Mortgage Loan Despite A Recent Bankruptcy Foreclosure Or Other Negative Credit Event
Perhaps you are interested in purchasing a new home, but you recently went through a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or short sale. You may think that, due to the recent damage to your credit history, it is not possible to qualify for a home mortgage loan
However, that is a common misconception.
These events do not permanently ruin your credit, and there are lenders out there who understand that you need to rebuild your credit score and are willing to approve you for a loan.
You may be able to rebound from your negative credit event much sooner than anticipated and still go on to become a homeowner.
The key factor that lenders consider in whether to offer a loan is how much time has passed since the event in question. This passage of time is also known as seasoning or the waiting period.
We outline below the different waiting periods and any additional requirements.
Don’t Miss: Is It Better To Settle Debt Or File Bankruptcy
Getting A Mortgage Following Bankruptcy Or Foreclosure
Had a bankruptcy or foreclosure? We have some good news: The Federal Housing Administration , Fannie Mae and Freddie Mac have all recently announced they were shortening the mandatory waiting period for qualifying for a home loan down to two years after a bankruptcy discharge or foreclosure. FHA announced it was shortening its own minimum waiting period to just one year, in its Back To Work program announced last spring.
Under the old rules, each agency imposed a four-year waiting period before they would be willing to approve a new mortgage loan. Fannie Mae reduced the waiting period in 2015, Freddie Mac made the announcement earlier this year, as did the FHA.
That means its now much easier for thousands of Americans to get a loan, even after experiencing a significant credit event. The new rules may benefit you if you have undergone any of these processes:
- Mortgage loan charge-offs
- Forbearance agreements
The bottom line: Its still very possible to get approved for a home mortgage, even after a major financial setback like a chapter 7 bankruptcy or having lost your home through a foreclosureand you wont have to wait the ten years it takes for a bankruptcy to scroll off your credit report, either. You can still qualify, even if your bankruptcy or foreclosure appears on your report.
Heres what you need to know:
VA Loan Considerations
The Hard Money Alternative
Any questions? Call us today! 891-0415
Waiting Periods For Veterans Administration Loans
Overview: Under the VA guidelines, the waiting periods range from one year to two years depending on which credit event is at issue, and whether you can demonstrate any special circumstances.
Below is a table summarizing the waiting period requirements, and any applicable additional requirements, for each type of event recognized by the VA:
To qualify for the shorter waiting periods for Chapter 7 bankruptcies, foreclosures, or deeds-in-lieu, you would have to demonstrate that the event was caused by extenuating circumstances beyond your control such as unemployment, prolonged strikes, or medical bills not covered by insurance. Divorce is not generally viewed as beyond your control.
HELPFUL TIP: In a foreclosure situation, if the foreclosed loan was a VA loan, you may not have full entitlement available for the new loan. In other words, entitlement might not be restored if your original VA loan was not repaid in full. Work with the lender to check your Certificate of Entitlement and see how much you are permitted to borrow without putting any money down.
Also Check: How Long Before Bankruptcy Is Discharged
Beware Grace Periods Debtors
Too often, debtors see grace periods offered by lenders as free benefits. Grace makes it sound so innocent. However, debtors who routinely rely on grace periods when making payments will find themselves facing financial difficulties that might lead to bankruptcy. The reason is that although creditors offer grace periods to debtors, they also use them
Can I Get A Mortgage After Bankruptcy
While declaring bankruptcy can negatively impact your in the short term, you may still qualify for a mortgage loan. However, it will take some time and effort. How long a bankruptcy keeps showing up on your credit report depends on the type of bankruptcy filed. Chapter 7 bankruptcies remain on credit reports for as long as 10 years while Chapter 13 bankruptcies remain on credit reports for seven years.
Recommended Reading: How To Get Approved For A Car Loan After Bankruptcy
How To Get Better Mortgage Rates After Bankruptcy
Bankruptcies are common and dont affect a persons ability to apply for a mortgage. Lenders treat bankruptcies like other credit events. Eligible buyers can still get mortgage-approved.
However, when buying a home after bankruptcy, you can improve your access to lower mortgage rates and low-down payment loans by raising your credit score.
Take these steps to improve your credit and get pre-approved for a mortgage.
Chapter 7 Bankruptcy Waiting Periods
The waiting period to buy a home after a Chapter 7 bankruptcy ranges from two to four yearsdepending on your mortgage type.
From the date of discharge:
- FHA loans: 2-year waiting period
- VA loans: 2-year waiting period
- USDA loans: 3-year waiting period
- Conventional loans: 4-year waiting period
The FHA allows a 12-month waiting period for buyers with extenuating circumstances, and Fannie Mae and Freddie Mac allow a two-year waiting period.
Recommended Reading: How To File For Bankruptcy In Virginia Without A Lawyer
How Bankruptcy Affects Your Ability To Get A Mortgage
Experiencing bankruptcy lowers your credit rating and creates other temporary obstacles to homeownership.
For example, in the first two years after filing for bankruptcy, a home buyer cannot be mortgage-approved through one of the governments five mortgage agencies. A two-year waiting period is required.
After two years, homeownership pathways widen.
- 24 months after discharge, FHA and VA mortgages are available to home buyers
- 36 months after discharge, USDA mortgages are available to home buyers
- 48 months after discharge, conventional mortgages are available to home buyers
Mortgage lenders dont discriminate against buyers with bankruptcy. Instead, lenders are interested in the bankruptcy circumstances and how the buyer has managed credit since discharge.
On-time payment histories are required, and credit scores must be in recovery.
FHA loans require credit scores of 500 or higher, and other government-backed mortgage loans require a minimum 620 FICO score.
Lenders will also confirm that the bankruptcy gets officially discharged by court order and that no new debts got added to the filing.
Tips To Improve Your Finances After Bankruptcy
In addition to meeting the minimum waiting periods, youll need to show the lender your financial house is in order to meet the re-established good credit guideline. Bankruptcy can have a massive impact on your credit scores, but the extent of the damage depends on your overall credit profile.
Someone with a pre-bankruptcy in the mid-700s might see a 100 point or more drop, while a borrower who already had a low score due to a history of mismanaging their credit might not see a dramatic difference. Regardless of where your credit scores were before your bankruptcy filing, youll need to demonstrate good financial management skills when you apply for a new FHA loan.
Here are some tips to spruce up your finances after a bankruptcy:
Don’t Miss: Can Irs Debt Be Included In Bankruptcy
What Are The Waiting Periods For Bankruptcy Or Short Sale Before Getting A New Mortgage
Extenuating circumstances could cut the waiting period to two years for Chapter 7 and Short Sale It can be pretty daunting to keep up with the waiting periods that different loan programs require before you can qualify for a new mortgage loan. Fannie Mae and Freddie Mac are the two agencies that issue a typical conventional mortgage loan. Below is a table you can use as a reference. Please contact us with any questions.
Fannie Mae vs Freddie Mac
Waiting Periods for Derogatory Credit
Waiting Period with Extenuating Circumstances
Waiting Period Requirements
Waiting Period with Extenuating Circumstances
|Bankruptcy Chapter 7 or 11||4 years||Defined by Loan Prospector Automated Underwriting System||Defined by Loan Prospector Automated Underwriting System|
||Defined by Loan Prospector Automated Underwriting System||Defined by Loan Prospector Automated Underwriting System|
|Multiple Bankruptcy Filings||5 years if more than one filing within thepast 7 years||3 years from the most recent discharge or dismissal date||Defined by Loan Prospector Automated Underwriting System||Defined by Loan Prospector Automated Underwriting System|
|Foreclosure *||3 years up to 7 years:
Social Security Number Not Necessary For Bankruptcy
A question thats commonly asked about New York bankruptcy is whether a debtor needs a Social Security number to file. Debtors ask because they sometimes run across the bankruptcy form title, Your Statement About Your Social Security Numbers , which asks debtors to list their current and prior Social Security numbers. The new bankruptcy
You May Like: How To Find If Someone Filed For Bankruptcy
What Is The Required Waiting Period For A Bankruptcy
A four-year waiting period is required, measured from the discharge or dismissal date of the bankruptcy action.
Exceptions for Extenuating Circumstances:
A two-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the discharge or dismissal date of the bankruptcy action.
A distinction is made between Chapter 13 bankruptcies that were discharged and those that were dismissed. The waiting period required for Chapter 13 bankruptcy actions is measured as follows:
- two years from the discharge date or
- four years from the dismissal date.
The shorter waiting period based on the discharge date recognizes that borrowers have already met a portion of the waiting period within the time needed for the successful completion of a Chapter 13 plan and subsequent discharge. A borrower who was unable to complete the Chapter 13 plan and received a dismissal will be held to a four-year waiting period.
Exceptions for Extenuating Circumstances:
A two-year waiting period is permitted after a Chapter 13 dismissal, if extenuating circumstances can be documented. There are no exceptions permitted to the two-year waiting period after a Chapter 13 discharge.
Multiple Bankruptcy Filings
For a borrower with more than one bankruptcy filing within the past seven years, a five-year waiting period is required, measured from the most recent dismissal or discharge date.
Exceptions for Extenuating Circumstances
What Are Todays Mortgage Rates
Mortgage lenders have loosening mortgage guidelines, so its easier to get mortgage-approved. With mortgage rates low, its an excellent time to compare todays rates.
Get todays live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.
Don’t Miss: Who Can File For Bankruptcy In Ny
Conventional Foreclosure Mortgage Waiting Period Discharged Through Bankruptcy
When a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting period applies when:
- Appropriate documentation to verify the mortgage was discharged in the bankruptcy.
- If appropriate documentation cannot be verified, the greater of the bankruptcy or foreclosure waiting period applies.
Chapter 13 Bankruptcy Waiting Periods
The waiting period to buy a home after a Chapter 13 bankruptcy ranges from zero days to two yearsdepending on your mortgage type.
From the date of discharge:
- FHA loans: No waiting period
- VA loans: No waiting period
- USDA loans: 1-year waiting period
- Conventional loans: 4-year waiting period
A typical Chapter 13 bankruptcy period lasts between three and five years, depending on the amount of debt and the debtors annual income.
With a Chapter 13 bankruptcy, your credit isnt affected as much as Chapter 7, which stays on a credit report for seven years.
You May Like: What Happens When A Corporation Files Bankruptcy
Fannie Mae Finally Follows Fha By Lowering Mandatory Waiting Period For Mortgage Loans After Derogatory Credit Event
FHA Sets the Standard with the Back to Work ProgramFHA vs. Fannie Mae: Securing the Right Mortgage Loan for You and Your FamilyJoel R. Spivack, Esq. is a knowledgeable bankruptcy and real estate attorney who has helped countless clients get their lives back on track. If you are looking to buy or sell a home, contact him today so he can help guide you through the real estate transaction process.Fannie Mae Finally Follows FHA by Lowering Mandatory Waiting Period for Mortgage Loans after Derogatory Credit EventSpivack Law
Waiting Periods For Non
Overview: If you cannot wait the required time periods under Fannie Mae, Freddie Mac, FHA or VA guidelines , you may want to consider obtaining a non-conventional loan from an alternative lender that has waiting periods as short as one day since the event in question. However, expect to pay higher interest rates.
Alternative lenders offer special programs for borrowers who have very recently undergone certain negative credit events. For instance, some alternative lenders require only a one-year waiting period for bankruptcies, without requiring you to show any extenuating circumstances.
Other alternative lenders may qualify you even if you are just one day out of foreclosure, short sale, bankruptcy, or deed-in-lieu of foreclosure.
Recommended Reading: Home Equity Loan Debt Ratio
Buyers Gain Additional Purchasing Power
Along with softening mortgage guidelines, todays mortgage rates are making it easier to get mortgage-qualified.
This is because low mortgage rates lower a mortgage applicants expected monthly payment, which, in turn, reduces its .
When mortgage rates are low, purchasing power extends.
Extra purchasing power can mean the difference between buying a 2-bedroom home versus a 3-bedroom one between buying a home with large closets versus small closets and, between buying an upgraded home versus a dated one.
Extra purchasing power can also mean the difference between buying in a top-rated school district and a second-tier one.
And, now, with Fannie Maes looser mortgage guidelines, more mortgage applicants can qualify for home loan financing.
How Can A Debtor Get A New Trustee
The trustee in a New York bankruptcy case is usually not the debtors ally. His or her purpose is mainly to administer the bankruptcy estate or ensure the debtors repayment plan goes according to plan. Trustees pursue preference payments, fraudulent conveyances, and other malfeasance committed by debtors. They frequently initiate adversary proceedings against debtors. In
How To Qualify For An Fha Loan After Bankruptcy
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.
If your homebuying plans were put on hold due to a bankruptcy, take heart: You may qualify for an FHA loan after a bankruptcy that has been discharged within the last one or two years. Although a bankruptcy may stay on your credit report for seven to 10 years, FHA guidelines allow you to qualify for a loan sooner, depending on whether you filed a Chapter 7 or Chapter 13 bankruptcy.