First Time Home Buyers Waiting Period After Bankruptcy
Good evening, while lenders varies, many do have established guidelines for borrowers with a history of bankruptcy. It will not be impossible, but it may be just a tiny bit tricky to get a mortgage after bankruptcy. While there are 6 types of bankruptcy, I will only focus on the two most commons ones for this guide. Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy - allows you to make a fresh start by way of releasing you from all dischargeable debts. Although the waiting period can be reduced to only 2 years with extenuating circumstances, typically you will need to wait for at least 4 years after the court discharges or dismisses your bankruptcy to qualify for a Conventional loan.
However, government backed mortgage such as USDA requires 3 years waiting period. For FHA and VA, the waiting period is only 2 years after your discharge or dismissal. For FHA Loan, the waiting period can be reduced to 1 year with extenuating circumstances. Chapter 7 bankruptcy does stay on your credit for up to 10 years.
Chapter 13 Bankruptcy -with Chapter 13, nothing gets removed, you actually reorganized your debts by way of making scheduled payments to your creditors for a period of 3-5 years. Chapter 13 bankruptcy does not have the same negative impact on your credit as Chapter 7.
Once the court dismisses your Chapter 13 bankruptcy, your waiting period is about 4 years from the date of your dismissal before you can apply for a Conventional loan. Again, this can be reduced to only 2 years with extenuating circumstances. Waiting period for USDA, VA and FHA is 1 year. Chapter 13 bankruptcy does stay on your credit for up to 7 years.
What are Extenuating Circumstances? - These are nonrecurring events that are beyond your control and result in a sudden, significant and prolonged reduction in income or dramatic increase in financial obligations. Examples include death of a wage earner, serous illness, identity theft, divorce, and loss of job. Keep in mind you do have multiple options once you have satisfied your waiting period.
Other loan types are Non-QM Loans. Non-QM loans typically do not conform to the CFPB’s standards, which are designed to protect consumers from unethical lending practices. These loans do not require any waiting period after bankruptcy. They allow you to qualify based on alternative methods instead of traditional income verification.
We want you to know that we are here for you and always looking out for your best real estate interest. Until next time...Diana
Image by Diana for First Home Houston
