How Long After a Bankruptcy Can I Get a Mortgage?

In the past, qualifying for a mortgage after bankruptcy was nearly impossible. One of the most common questions we get is “How long after bankruptcy can i get a mortgage?” Many consumers do not realize that one of the best ways to reestablish credit after a bankruptcy with a mortgage.

Typically after recovering from bankruptcy people ask me how long it will take to qualify for a mortgage loan, refinance, home equity loan, or home improvement loan after bankruptcy or how long after bankruptcy to buy a home.

Banks and mortgage lenders understand that it is normal for good people to go through financial hardships and that’s why they extend credit opportunities with new mortgage programs after a bankruptcy.

Getting a Mortgage After Bankruptcy to Buy a Home

It’s not always easy to find them, but there are a handful of banks and mortgage companies that offer affordable financing to people looking to buy a house after bankruptcy.

Going through the bankruptcy process can be a daunting and challenging experience, but it doesn’t mean you’ll never be able to buy a house again.

With patience, diligence, and a solid financial plan, you can bounce back from bankruptcy and get approved for a mortgage while achieving your dream of homeownership.

Learn How to Buy a Home After a BK

The minimum credit score may vary depending upon which type of bankruptcy was discharged.

Let’s consider the timeline for getting a mortgage after bankruptcy and the steps you can take to improve your chances of approval.

Types of Bankruptcy
The first step in understanding the timeline for getting a mortgage after bankruptcy is to determine which type of bankruptcy you filed. The two most common types for individuals are Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 Bankruptcy: Also known as “liquidation bankruptcy,” this type typically discharges most unsecured debts. It allows you to start fresh, but it may involve the liquidation of certain assets. This is the most common bankruptcy.

Chapter 13 Bankruptcy: Often called “reorganization bankruptcy,” it involves a repayment plan where you can retain your assets and work to repay your debts over several years.

Waiting Periods for Mortgage Eligibility After a Bankruptcy

The waiting period before you can apply for a mortgage after bankruptcy depends on the type of bankruptcy you filed and the specific mortgage program you’re interested in. Here are some general guidelines:

FHA Mortgage: If you filed for Chapter 7 bankruptcy, you’ll typically need to wait at least two years from the discharge date before you apply for an FHA loan. For Chapter 13 bankruptcy, you might be eligible for a mortgage during the repayment plan, provided you’ve made at least 12 consecutive FHA loan payments and received court approval. Check up on the FHA minimum credit score requirements today. With extenuating circumstances, these waiting periods may be shorter with FHA loans.

Conventional Loan: Conventional mortgages offered by private lenders typically require a waiting period of four years after a Chapter 7 bankruptcy discharge. For Chapter 13 bankruptcy, you may be eligible for a conventional loan two years after discharge or four years after dismissal. Fannie Mae and Freddie Mac define extenuating circumstances as “unforeseen events beyond the borrower’s control that lead to a sudden, substantial, and prolonged decline in income or an overwhelming increase in financial obligations.” Many borrowers assume that they do not qualify for a conventional loan after a bankruptcy, but Fannie Mae and Freddie Mac believe in second chance opportunities with home financing.

If a bankruptcy occurs due to extenuating circumstances, it may lead to a reduced waiting period for various types of mortgage loans being approved after a bankruptcy discharge would traditionally be. Getting a conventional loan after bankruptcy is possible if you get prepared and meet the requirements outlined by Fannie Mae and Freddie Mac.

VA Mortgage: Veterans and active-duty service members can often qualify for a VA loan two years after a Chapter 7 bankruptcy discharge or one year into a Chapter 13 repayment plan. There is no minimum credit score to get a VA loan after a bankruptcy with this government financing program. Getting a VA loan after bankruptcy is extremely possible if you

USDA Mortgage: If you’re interested in a USDA loan, you might be eligible for this type of mortgage three years after a Chapter 7 bankruptcy or one year into a Chapter 13 repayment plan. USDA loans are designed to assist borrowers in rural areas to finance a house, providing them with the advantages of competitive mortgage rates and the opportunity to become a homeowner without making a down payment. Find out if you qualify for a USDA loan after a bankruptcy.

Steps to Improve Your Ability to Be Approved for a Mortgage After a Bankruptcy

Let’s explore how long after bankruptcy you get a mortgage and what type of home loan is available for your situation. While you’re waiting to become eligible for a mortgage after bankruptcy, there are several proactive steps you can take to improve your financial situation and increase your chances of approval:

Rebuild Your Credit: Focus on rebuilding your credit by paying bills on time, reducing outstanding debts, and using credit responsibly. Secured credit cards and small personal loans can help in this process. Ensure timely payments on existing loans and credit cards, and regularly monitor your credit.

Budget Wisely: Create a realistic budget and stick to it. Demonstrating financial responsibility will show lenders that you’re prepared to handle a mortgage.

Save for a Down Payment: Saving for a down payment demonstrates your financial discipline and reduces the amount you need to borrow. The more you can put down, the more favorable your mortgage terms may be. Increasing your savings reduces the amount you’ll have to borrow for a mortgage loan.

Seek Housing Counseling: Consider working with a housing counselor who can guide you through the mortgage application process and help you make informed financial decisions.

Monitor Your Credit Scores: Regularly check your credit report for errors or inaccuracies. Dispute any discrepancies you find to ensure your credit score is as high as possible.

Shop Around: When you become eligible for a mortgage, shop around and compare offers from different lenders. Each lender may have slightly different requirements and terms.

Exploring Pre-Qualification for a Mortgage Loan: Engaging in the pre-approval process provides insights into the suitable purchase price range and offers an estimate of your prospective monthly payment.

New Mortgage Programs to Help People Buy a Home or Refinance after a Bankruptcy

In the last 10 years, the American dream of buying your own home turned into a nightmare for too many of us.

During the housing crunch, more than seven million homes were foreclosed upon, and many Americans ended up in bankruptcy.

There are many misconceptions in the public about bankruptcy.

One of the biggest is that you cannot buy a home for at least seven years after you have declared chapter 7 or chapter 13 bankruptcy. This is not the case at all. It is possible to get a mortgage after bankruptcy if you know where to look.

The most likely reason that this myth persists is that generally, a bankruptcy public record will stay on your credit report for up to seven years. This does not mean that you cannot buy a home again within those seven years.

If you want to buy a house after bankruptcy it is important that you get a plan. If you are ready to jump back in the housing market and recently declared bankruptcy, we would like to offer you these tips and ideas:

#1 Wait!

As noted above, a bankruptcy can stay on your credit reports for up to seven years. This rarely means you are unable to buy a house again fairly soon. Some mortgage lenders are able to approve a client for a new mortgage after a bankruptcy as soon as a month.

However, that is more the exception than the rule. Many lenders will be understandably wary of you with a very recent bankruptcy.

After your bankruptcy is discharged, it is a smart idea to wait at least a year until the dust has settled on your financial situation. The smartest thing you can do during this period is to pay all of your bills and rent on time.

When you apply for a home loan after a bankruptcy, home improvement loan after bankruptcy, or home equity loan after bankruptcy, the lender will see the Chapter 7, 11, or 13 reported by the U.S. District Court. But if you have shown for the last year or two that you are back on your feet financially, they may approve your mortgage after a bankruptcy. Even first time home buyers may be able to get qualified to buy a house after a bankruptcy is discharged.

Also note that even with a recent bankruptcy, there are some credit card companies that may approve you for a credit card. Some recently bankrupt clients report that they were still able to be approved for a $500 credit limit Mastercard or Visa. Others may only be able to get a secured credit card, but this can still be used to build your credit.

#2 Save Money Before Applying to Buy a House After a Bankruptcy

With a recent bankruptcy, you will want to show potential lenders that you have money saved up to put down on a house. You do not necessarily have to put down 20% – that is another myth out there – but the more you have, the easier time you will have getting a mortgage after a bankruptcy.

The Federal Housing Administration or FHA offers 3.5% down payment home loans for people who have at least a 620 FICO score. If your score is lower than that, you would likely need to put down up to 10%. One of the most popular programs we hear about is for an FHA loan after the bankruptcy was discharged 24 months. Learn how much of a home you can afford with a FHA loan today.

If you can show that you have skin in the game, it is more likely that a lender will view your file favorably and give you a mortgage.

Another plus of FHA mortgages with low credit scores is that if you are approved by a lender, the interest rate will often be lower than standard market rates. Buying a house with bad credit scores is always challenging so it’s very important that you get advice from financial companies that have access to mortgage programs, like the FHA.

#3 Shop for a Mortgage After Bankruptcy

One of the biggest mistakes that many potential home buyers make is to not shop around for a mortgage. This is very important always but is especially important when you are coming out a bankruptcy.

Many subprime lenders will not want to work with you, but a few companies still may. You have to shop around and find a company that offers a reasonably priced mortgage for people with bad credit.

When you are ready to buy a house after bankruptcy, you will most likely be required to provide traditional income documentation, so that means that a stated income loan will be out of the question. If you need a mortgage refinance after a foreclosure reach out to lenders that specialize in these types of refinance loans.

#4 Check Your Credit Report

You can improve your credit more quickly by getting a copy of your credit report. Be sure that everything is accurate. You will have filings on your credit report about debts that were discharged in your bankruptcy. You want to make certain that nothing that was discharged in the bankruptcy is still showing a due balance.

This has been known to happen. Most bankruptcies involve a large number of credit accounts. It is possible for something to slip through the cracks. Before applying for a mortgage after bankruptcy, you want to make sure you meet the minimum credit score required.

#5 Try to Get a Car Loan

A great way to rebuild credit is to get an installment loan, which is most often a car loan. You will have to get a car loan with a higher interest rate, but that is ok. We recommend that you get an inexpensive car and make regular payments on the auto loan for at least a year.

Typically, those regular installment payments will raise your score and will show a mortgage lender that you are a good risk again.

Frequently Asked Questions 

What happens to your mortgage when you file bankruptcy?

Bankruptcy can help you recover from your debt, but you’ll still need to make your mortgage payments. We suggest you speak with several experienced attorneys that can explain how bankruptcy laws affect the mortgage lien secured by your home.

If you’re unable pay your monthly mortgage payments, filing for bankruptcy can offer relief from debt collection and foreclosure. You need to discuss with an attorney what happens to your mortgage if you file for bankruptcy.

The Bankruptcy Code treats home loans and mortgages differently from other consumer debts because they are secured by real estate collateral. The mortgage lender has the right to receive the value of your home up to the amount owed on the mortgage. What happens to your mortgage in bankruptcy ultimately depends on how many mortgage payments you missed and whether you have first and second mortgages recorded on title to your property

What credit score do you need to qualify for a mortgage after a bankruptcy?

Mortgage lenders will have different credit score requirements for borrowers who had a bankruptcy or foreclosure discharged. For example, there are lenders that will offer VA loans with a credit score of 500 after a bankruptcy and lenders may want a 580 credit score for an FHA loan. USDA and conventional mortgage programs may require a 620 credit score as long as the bankruptcy has been discharged long enough ago.

Can I Get a Home Equity Loan After a Bankruptcy?

It can very challenging finding a bank or lender that offer home equity loans with bad credit, but there are still a few private money and non QM lenders that do. It’s really important to not have any late payments or collections after your bankruptcy has been discharged. The RefiGuide can help you find companies that offer HELOCs and fixed rate equity loans after a bankruptcy.

What happens if one person on a mortgage files bankruptcy?

If your co-owned home is under Chapter 7 bankruptcy, the bankruptcy will eliminate your ex’s financial obligation for the mortgage on the property. However, since you did not file for bankruptcy, the bank or mortgage lender can seek repayment from you. If you fail to meet both your mortgage payment obligations and your former spouses payment requirements, the bank can foreclose on the home. Additionally, if your former spouse still lives in the home and filed for bankruptcy, the bank or mortgage lender can still pursue you for payment of the home loan.

Takeaway on Getting a a Mortgage After Bankruptcy

Buying a house is challenging on its own, but if you’ve filed for bankruptcy, it may seem even more difficult. However, homeownership is still achievable, whether you’ve filed for Chapter 7 or Chapter 13 bankruptcy.

Your main obstacles will be the mandatory waiting periods after filing for bankruptcy and the need to rebuild your credit score to qualify for a mortgage.

Additionally, a lower credit score resulting from your bankruptcy might prevent you from qualifying for the lowest interest rates offered by lenders. This could mean higher monthly mortgage payments or needing to purchase a less expensive home compared to someone with excellent credit. This can feel discouraging when you’re trying to restore your financial health.

Bankruptcy doesn’t mean the end of your homeownership dreams. The waiting period for getting a mortgage after bankruptcy varies depending on the type of bankruptcy and the loan program. While you’re waiting, focus on improving your financial habits, rebuilding your credit, and saving for a down payment. With time and effort, you can increase your chances of qualifying for a mortgage after a bankruptcy and achieving your goal of owning a home once again.

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