Qualifying for a Mortgage After Bankruptcy
Qualifying for a mortgage after bankruptcy can present challenges, but it’s not impossible. While buying a house can be difficult during or immediately after completing a BK filing, many lenders have established guidelines for underwriting home loans for borrowers who’ve emerged from Chapter 7 or 13, completed a waiting period and otherwise meet home loan eligibility requirements.
Post-bankruptcy, applicants must typically waitbefore qualifying for a home loan. If you file a Chapter 7, the waiting period after its discharge or dismissal is generally two years for government loans (like FHA mortgages) and four years for conventional (non-government) loans. If there were extenuating circumstances, the waiting period may be reduced to two years for conventional loans and one year for FHA loans.
If you file Chapter 13 and apply for a conventional loan, the waiting period is two years from the discharge date. With FHA, you simply have to make your Chapter 13 payments on time for a year and get the permission of the bankruptcy court to take on a new mortgage.
Extenuating circumstances are typically one-time catastrophic events such as the death of a primary earner, natural disaster, accidentor serious illness. Mortgage lenders require documentation of extenuating circumstances. Lender requirements may vary, so it’s a good idea to discuss your circumstances with home loan officers to see if they qualify as “extenuating.”
Managing Your Credit
In addition to waiting periods, most mortgage lenders require borrowers to achieve a near-perfect credit history after a BK filing. Pay accounts on time and avoid incurring collections, bounced checks and civil judgments. The waiting period between completing your bankruptcy and becoming eligible for a new home loan allows you to pay down remaining debts and build your savings.