Getting a mortgage after bankruptcy is possible, typically requiring a waiting period of 2-4 years and demonstrating re-established credit and financial stability to meet lender requirements.
However, if you have a recent chapter 7 or chapter 13 bankruptcy, you can still qualify for a mortgage to purchase or refinance your home without waiting. Depending upon which loan program you choose, the waiting period can be anywhere from 1 day after your discharge.
We have helped home buyers to finance their purchase for over two decades despite having a recent bankruptcy. Contact us here to discuss your options without a credit pull.
DBA United Mortgage Corp (NMLS# 1330)
What is a Chapter 7 Bankruptcy?
A chapter 7 bankruptcy serves to wipe all of the debt clean through a liquidation from the date of discharge. The exception would be a primary residence home if the individual filing for bankruptcy wishes to retain the home. In that situation, the mortgage would remain outstanding and payments must be made. If the homeowner cannot make the payments on the home, the bank will foreclose on the property.
From a mortgage perspective, a Ch 7 bankruptcy has the longest waiting period before having the ability to qualify for a conventional, FHA, VA or USDA loan.
You should expect the down payment and interest rates to be higher due to the recent chapter 7 bankruptcy. In some instances the closing costs may also be higher.
What is a Chapter 13 Bankruptcy?
With a chapter 13 bankruptcy, the debt is not forgiven. There is a 3-5 year payment plan put in place to repay the creditors. Payments are made to the bankruptcy trustee who in turn makes payments to the creditors. The waiting period for a mortgage after a chapter 13 is shorter than a chapter 7.
On time repayment of the bankruptcy payment plan is critical in your ability to get approved. The interest rates and down payment may be lower than if you had a chapter 7 bankruptcy.
How to Get a Mortgage Right After a Bankruptcy
Many assume that after filing for a bankruptcy that you can not get a mortgage for at least 2-3 years until after it is discharged. While this is the case with most banks and mortgage companies, there are some non-prime lenders that do not have these sort of waiting periods. This means that you may be able to get a mortgage even just one day after a chapter 7 or a chapter 13 bankruptcy!
The first step is to speak with your bankruptcy attorney to discuss your desire to apply for a mortgage. There are times when the bankruptcy attorney will recommend a particular course of action regarding the bankruptcy which could hurt your chances of getting approved for a mortgage. You should also speak with us simultaneously to discuss your options before making any changes to your bankruptcy status.
Next, start to collect the required documentation prior to completing the mortgage application. You will likely need copies of your pay stubs, bank statements, W2s and tax returns.
What Do Bankruptcy Loans Offer?
Non-prime loans provide much more flexible qualification requirements than prime loans.
Several mortgage lenders offer non-prime loans, which have the following advantages:
- No waiting periods after any type of bankruptcy (including chapter 7 and chapter 13 bankruptcies).
- There are also no waiting periods required after a foreclosure or short sale.
- Qualify with a credit score as low as 500.
- LTVs as high as 90%.
- Loan amounts available up to $5,000,000.
- DTI ratios as high as 50% accepted.
- Foreign nationals and ITIN borrowers may be eligible.
- Asset depletion allowed (use your assets instead of income to qualify).
- Options to use your bank statements instead of tax returns (bank statement loans for self-employed borrowers).
The exact requirements to get a non-prime loan vary from lender to lender. You can view 6 of the best non-prime lenders below. All of these lenders do not have any waiting periods after a bankruptcy. If you would like some assistance we can help.
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Pros and Cons of a Mortgage after a Recent Bankruptcy
There are some benefits and also some drawbacks of getting a mortgage after a recent bankruptcy. We will take you through those pros and cons below.
Pros
- Purchase or refinance a home without the usual waiting period
- Cash out equity of your current home to pay down new debt
- You can purchase, refinance or cash out with a bankruptcy mortgage
- The program is available with lower credit scores
- Available just one day after your discharge date
- You can refinance once the usual waiting period as ended.
Cons
- Not all mortgage programs are available with a recent bankruptcy
- The down payment will be higher and possibly as much as 25%
- The interest rate will be higher than conventional or FHA
- Your mortgage payments will likely be higher
- It is not easy to find a lender that is willing to accept borrowers with a recent bankruptcy
What to Look for in a Bankruptcy Lender
The most important thing when working with a lender after you had a recent bankruptcy is to find someone who specializes in this type of loan. Most lenders and especially those who are referred to by real estate agents typically do not allow for recent bankruptcies and their only chance for approval is to try for an exception. Unfortunately, an exception to the bankruptcy waiting period is extremely rare.
This type of specialized lender or loan officer will have spent years helping people with a bankruptcy to purchase or refinance a home. Plus, they will have access to all possible programs which will allow for a recent bankruptcy/
Finally, the loan officer should know how to properly prepare your file in a way to give it the best chance for approval by the underwriter. Then, if there are any concerns having the ability to work through them and make sure the end result is a mortgage approval.
We have experience in working with recent bankruptcies regardless of whether it was a chapter 7 or 13. One of our loan officers will help guide you to find the optimal solution for your particular bankruptcy scenario, credit score, and available down payment funds.
DBA United Mortgage Corp (NMLS# 1330)
Bankruptcy Waiting Periods for Mortgages
Below is some information on the waiting periods to get a mortgage after a bankruptcy. This includes details on the waiting periods for conventional loans, FHA loans, VA loans, and USDA loans.
Conventional Mortgage After a Bankruptcy
Until recently, Fannie Mae required that a borrower wait at least 4 years after their bankruptcy discharged before they would be eligible to apply for a conventional loan. Some great news, is in 2024, this waiting period has been reduced to only 2 years.
You will likely need to rebuild your credit, but fortunately you may be able to get a conventional loan only just 24 months after your bankruptcy is discharged.
FHA Loan During and After a Bankruptcy
The FHA rules state that you must wait at least 2 years after filing a chapter 7 bankruptcy. Some banks may require a longer time to pass, but many FHA lenders will approve an application only after 2 years.
There can be exceptions to the FHA waiting period after a Ch7 bankruptcy if you can prove financial hardship caused by extenuating circumstances.
For a chapter 13, you only need to wait until you have successfully made 12 months of payments. Additionally, you will need to provide the court trustee’s written approval. Also, keep in mind that the clock doesn’t start upon filing, but rather once the bankruptcy has been discharged.
USDA Loan Immediately After Bankruptcy
The USDA rules are similar to the FHA. You will need to wait at least 2 years after filing a chapter 7 bankruptcy. For a chapter 13 bankruptcy, you may be eligible after making 1 years worth of payments on time.
As you can see, there are different rules related to waiting periods for various types of mortgage programs. If you have had a recent bankruptcy, you may have options to get a mortgage. If you would like some help finding a mortgage lender, we can help match you with a lender in your location.
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Getting a Mortgage After a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy
If you went through a foreclosure and bankruptcy around the same time, which is quite common, there are more steps that may be needed prior to being eligible for a conventional, FHA, or USDA loan. What often occurs is a foreclosure and bankruptcy in a short period of time. Many times, if someone loses a job, they will foreclose and then file for bankruptcy not long after. Many lenders charge what is known as a “deficiency” to recover losses from the foreclosed property. This leads many to file for a chapter 7 bankruptcy in order to clear the deficiency.
Whatever your reason was for foreclosing and filing for bankruptcy, you may have a chance to purchase a home again using a conventional, FHA, or USDA loan. The clock for your waiting period will begin once either the home has fully foreclosed, or your bankruptcy has been discharged, whichever occurs last.
We understand there is a lot to grasp when embarking on becoming a homeowner again after a bankruptcy. Would you like some assistance in getting your questions answered, and finding the best mortgage lender for your particular situation? We provide personalized service and would be glad to provide you a free consultation to learn about your options.
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Mortgage Lenders that Work with Chapter 13
Many lenders claim to accept applications from people who have been through a chapter 13 bankruptcy. However, most of those lenders are still asking for the traditional waiting period after the discharge date.
You can get approved with an active chapter 13 well before it has been discharged. You simply need to have made on time bankruptcy payments for at least one year. If you are in the midst of a chapter 13 bankruptcy, we can help you to qualify for a mortgage now.
Bankruptcy Friendly Credit Unions
One of the advantages of a credit union is they may have flexible lending guidelines. Some bankruptcy friendly credit unions may not require a waiting period after your bankruptcy discharge.
Meanwhile, one of the challenges is finding these credit unions because they are often small and do not advertise. If you need help getting a mortgage after a bankruptcy without waiting, then just contact us.
Frequently Asked Questions About Getting a Mortgage After a Bankruptcy
How long do I have to wait after bankruptcy to apply for a mortgage?
For an agency loan you will need to wait 2-4 years, but there are subprime mortgage options which can be done one day after your bankruptcy discharge.
What types of mortgage loans are available to me after bankruptcy?
Depending upon how long ago your bankruptcy was discharged, you may have anywhere from 1-4 mortgage options.
What credit score do I need to qualify for a mortgage after bankruptcy?
You may find a mortgage with credit scores as low as 500 even if you had a recent bankruptcy.
Are there specific lenders who specialize in mortgages for people with a recent bankruptcy?
There are specific lenders who are willing to work with people who have a recent bankruptcy discharge. However, most lenders prefer to avoid bankruptcies which makes it challenging to find someone who can help.
What steps can I take to improve my chances of getting approved for a mortgage after bankruptcy?
The best thing you can do to help secure a mortgage approval is to improve your credit scores, show that you have established good paying habits, and have a down payment plus reserves.
How does a recent bankruptcy affect my mortgage interest rate?
If you have a recent bankruptcy, you can expect the interest rates to be higher especially if you secure a subprime loan.
Can I get pre-approved for a mortgage after bankruptcy?
You can get pre approved for a mortgage after a bankruptcy and we recommend speaking with one of our loan officers well before you begin shopping for a home.
Are there government programs that can help me get a mortgage after bankruptcy?
There are no government programs at this time that help secure a mortgage after a bankruptcy. However, checking to see whether there are down payment assistance programs in your area can help.
What other factors do lenders consider if I have a recent bankruptcy?
Lenders also will look at job stability, credit scores, the size of your down payment, and recent credit activity.
What documents do I need to provide when applying for a mortgage after Chapter 7 bankruptcy?
You will need the same documents as you would if applying for a mortgage without a bankruptcy. Expect to provide your last 30 day pay stubs, last two months bank statements, last two years of W2s and last two years of tax returns.
How can I improve my chances of getting approved by mortgage lenders after Chapter 7 bankruptcy?
You can improve your chances of getting approved by improving your credit score and having a large down payment.
Can a mortgage lender help me rebuild my credit after filing for Chapter 7 bankruptcy?
A good loan officer who is experienced can provide you with some guidance on how to rebuild your credit.
What is the difference between a mortgage lender and a traditional bank?
A traditional bank offers the ability to have bank deposits, checking accounts, credit cards, and other services. Mortgage lenders solely focus on providing mortgages.
What interest rates can I expect when getting a mortgage with chapter 7 bankruptcy?
You should expect the interest rate to be at least 1-2% higher than conventional loans depending upon your credit scores and down payment.
What is the down payment needed for a mortgage after a bankruptcy?
The down payment requirement when applying for a mortgage immediately after a bankruptcy discharge is at least 20%. However, you can get an FHA loan with just 3.5% down if you have a chapter 13 bankruptcy.
Mortgage after Bankruptcy Facts
1. Chapter 7 bankruptcy is a type of bankruptcy filing in the United States which limits borrower’s ability to secure a mortgage.
2. Some mortgage lenders are open to working with individuals who have filed for a bankruptcy.
3. These lenders may offer specialized loan programs or conditions for borrowers with a Chapter 7 or Chapter 13 bankruptcy on their record.
4. The eligibility criteria and terms for obtaining a mortgage after a bankruptcy may vary from lender to lender.
5. Working with a mortgage lender that specializes in bankruptcies can help borrowers navigate the complexities of obtaining a mortgage loan after bankruptcy.
Statistics About Getting a Mortgage Just After a Bankruptcy
DBA United Mortgage Corp (NMLS# 1330)
Other Helpful Articles
Finding a mortgage with a recent Chapter 7 Bankruptcy
Applying for a mortgage while still in Chapter 13 Bankruptcy
