When a consumer is overwhelmed with debt and can’t find a way to pay their creditors, they often file for bankruptcy. Filing for bankruptcy can give you some relief from debts and stop collection activities such as repossession and lawsuits. However, bankruptcy can seriously hurt your credit and would stay on your credit report for a while. Does this mean that you can’t qualify for a mortgage after bankruptcy? No, this isn’t the case. Many lenders have established guidelines for consumers who emerge from bankruptcy and complete the waiting period. In this post, we will explain how you can get a mortgage after bankruptcy.
How Your Ability to Acquire a Mortgage Is Affected by Bankruptcy
Bankruptcy can lower your credit score and affect your ability to get loans. Fortunately, its impact doesn’t last forever. Before you can apply for a mortgage, your bankruptcy should be discharged. The court orders a bankruptcy discharge, and it eliminates your debts. The lender will want to see that your bankruptcy is discharged, and they will also look at your credit to determine whether you can qualify. There is also a waiting period that must be completed before applying for a home loan after bankruptcy. This period varies depending on the type of home loan you are applying for.
Waiting periods start once the bankruptcy is dismissed or discharged, meaning that the case is over, and you will be paying your debs without a bankruptcy payment plan. For Chapter 7 Bankruptcy, the waiting period is calculated from the dismissal or discharge date of the bankruptcy case. For Chapter 13 Bankruptcy, the waiting period for bankruptcy that is discharged isn’t the same as the bankruptcy that was dismissed.
Chapter 7 bankruptcy is removed 10 years after the date of filing, while Chapter 13 bankruptcy is removed seven years after the filing date. Credit reporting agencies normally delete bankruptcy from the consumer’s credit report after 10 or 7 years. However, it is still a good idea to check your report to ensure that there is no bankruptcy on it.
Waiting Periods of Different Home Loans
For Chapter 7 bankruptcy, the waiting period of conventional loans is 4 years, FHA loans’ waiting period is 2 years, that of the USDA loans is 3 years, and VA requires consumers to wait 2 years after the discharge or dismissal date.
For Chapter 13 bankruptcy, conventional loans’ waiting period is 2 years from the discharge date and 4 years from the dismissal date. FHA loans, USDA loans, and VA loans require consumers to wait at least a year after the discharge or dismissal date.
Getting a mortgage after bankruptcy isn’t an easy feat. But, if you are discharged from bankruptcy, wait for the required period and develop a good credit after bankruptcy, you may still be able to get a home loan.