How Soon Can You Get a Mortgage After Bankruptcy? | Credit 101 Ep. 159

Recovering from bankruptcy and obtaining a mortgage is possible, but the timing and requirements can vary depending on several factors, including the type of bankruptcy filed, the type of mortgage, and your financial situation. Here’s a detailed guide on the timelines and requirements for getting a mortgage after bankruptcy:

1. Types of Bankruptcy

• Chapter 7 Bankruptcy: This is a liquidation bankruptcy where most of your unsecured debts are discharged. It usually stays on your credit report for up to 10 years.
• Chapter 13 Bankruptcy: This involves a repayment plan to settle your debts over a period of 3 to 5 years. It generally remains on your credit report for up to 7 years.

2. Waiting Periods for Different Types of Mortgages

• FHA Loans:
  • Chapter 7: You can apply for an FHA loan 2 years after the discharge date of your Chapter 7 bankruptcy. If you had a foreclosure, the wait period is 3 years from the date the foreclosure was finalized.
  • Chapter 13: You can apply 1 year after starting your Chapter 13 repayment plan, provided you have made timely payments and have the court’s approval.
• VA Loans:
  • Chapter 7: You can apply for a VA loan 2 years after the discharge of your Chapter 7 bankruptcy. If you had a foreclosure, the wait period is 2 years from the foreclosure date.
  • Chapter 13: You may apply 1 year into the Chapter 13 repayment plan if you’ve made timely payments and received approval from the court.
• USDA Loans:
  • Chapter 7: The wait period is 3 years after the discharge date of Chapter 7 bankruptcy. For foreclosure, the wait period is 3 years from the completion of the foreclosure.
  • Chapter 13: You can apply 1 year into your repayment plan if you have made timely payments and received court approval.
• Conventional Loans:
  • Chapter 7: You can apply 4 years after the discharge of Chapter 7 bankruptcy. The waiting period may be reduced to 2 years with a significant down payment and strong credit profile.
  • Chapter 13: The wait period is typically 2 years from the discharge or dismissal of Chapter 13, with strong credit and a solid payment history.

3. Factors Affecting Your Eligibility

• Credit Score: A higher credit score can improve your chances of getting approved for a mortgage. Post-bankruptcy, focus on rebuilding your credit by paying bills on time and reducing debt.
• Down Payment: A larger down payment can sometimes reduce the waiting period or increase your chances of mortgage approval.
• Income Stability: Lenders will assess your income stability and ability to make mortgage payments. Ensure you have a stable job and a good income before applying.
• Current Debts: Manage and reduce existing debts to improve your debt-to-income ratio, which is a key factor in mortgage approval.
• Bankruptcy Discharge Status: Ensure your bankruptcy case is fully discharged and closed before applying for a mortgage.

4. Steps to Take Before Applying for a Mortgage

• Review Your Credit Report: Check for errors or inaccuracies and work on improving your credit score.
• Save for a Down Payment: Start saving to build a substantial down payment, which can improve your chances of getting approved.
• Get Pre-Approved: Seek pre-approval from lenders to understand how much you can borrow and to show your seriousness as a buyer.
• Consult a Mortgage Professional: Speak with a mortgage broker or lender who can guide you through the process and help you understand your options based on your specific situation.

Conclusion

The timeline for getting a mortgage after bankruptcy varies based on the type of bankruptcy and the loan program. While the waiting periods are set, your overall financial health, credit score, and down payment can significantly impact your eligibility and terms. By taking proactive steps to improve your financial situation and understanding the requirements, you can work towards securing a mortgage and achieving homeownership after bankruptcy.