When Do Bankruptcy Waiting Periods Start
Understand that the waiting periods after Chapter 7 bankruptcy dont start until a bankruptcy court discharges or dismisses your bankruptcy.
Thats at the end of the bankruptcy proceedings typically 4-6 months after you first file.
If youre counting down the days until you can buy a house after bankruptcy, be sure to start your calendar on the correct date of the discharge or dismissal because it will make a big difference in when you hit the two-year mark.
Can I Get A Mortgage While In Bankruptcy
The Short Answer is Yes, you can get a mortgage while in Bankruptcy. During any bankruptcy, there are a number of hurdles you may encounter when requesting new credit such as a mortgage. There are however ways to navigate these hurdles successfully. Here at Peoples Bank Mortgage, we specialize in assisting individuals who are struggling to get a mortgage during Chapter 13 bankruptcy. Learn more about how our bankruptcy mortgage division is able to help, and have you well on your way to getting a mortgage during bankruptcy.
How Soon Can I Buy A House After Bankruptcy
Depending on the type of mortgage you qualify for, your lender, the type of bankruptcy you declared and the cause of your bankruptcy, you may have to wait one to four years after filing bankruptcy. You will also have to wait until your credit score has recovered enough for you to qualify for a mortgage.
First, letâs talk about the two most common types of consumer bankruptcy: chapter 7 and chapter 13. Weâll also show you how long you have to wait before you might qualify for certain common mortgage types.
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Is It Hard To Buy A House After Bankruptcy
Getting a loan will be very difficult for a few years immediately following a bankruptcy, says Reggie Graham, branch manager for Silverton Mortgage.
He notes that home buyers applying after bankruptcy can often expect bigger down payment requirements and higher interest rates.
Your focus should be on rebuilding your credit to prepare for applying for a mortgage loan when youre ready, says Graham.
Keep in mind that a bankruptcy filing stays on your credit reports for 7-10 years. And even after you become mortgage-eligible, your lender may still require legal documentation from the bankruptcy court to verify your status when you apply.
This doesnt hinder your ability to buy a home. But its realistic to acknowledge that a lender is going to consider that fact when reviewing your loan request, cautions Heck. My suggestion is to expect 2-3 years to rebuild your financial health following a bankruptcy.
Graham also suggests the wait time to buy a home may be shorter if you file a Chapter 13 bankruptcy instead.
Chapter 13 involves paying back an agreed-upon portion of your debt, which lenders look more kindly upon, he explains.
Federal Housing Authority Loan
An FHA loan is a federally-insured loan. It’s attractive to first-time, cash-strapped home buyers because it offers the ability to put down as little as 3.5% of the purchase price.
Additionally, the requirements are more liberal than conventional loans. You’ll likely qualify with a credit score of:
- 640 and 3.5% down
- 580 if you can afford a higher interest rate, or
- 500 and 10% down.
If you’d like better terms, consider taking steps to improve a credit score of less than 640.
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Chapter 7 Waiting Periods
After a bankruptcy is discharged, it will take time to build your credit and savings back up to home-buying level. And lenders want to know your financial situation has fully recovered and that youll be able to manage on-time payments with a new mortgage.
As such, mortgage lenders enforce a minimum waiting period or seasoning period before borrowers can apply for a mortgage after bankruptcy.
The minimum waiting periods to get a mortgage after Chapter 7 are as follows:
- FHA loans: two years
- USDA loans: three years
- Conventional loans : four years
Understand that these waiting periods are the minimums required by each loan program. Some lenders will require you to wait longer.
For example, some lenders will ask you to wait three years before applying for an FHA loan rather than the two-year minimum required by the Federal Housing Administration.
There are some rare situations where borrowers can get approved before the two-year waiting period, which we describe below. But for most prospective home buyers, these minimums will be strictly enforced.
Take the time to get your credit score as high as possible and save for a bigger down payment. Both strategies will help you get a lower mortgage rate and a more affordable home loan when you do buy.
Fha Loans After Chapter 7 Bankruptcy
Fortunately, you can qualify for an FHA loan following Chapter 7. But be prepared to wait a while before youll get approved.
Bankruptcy will not stop you from making a large purchase, like a home, in the future. So yes, it is possible to obtain an FHA home loan after Chapter 7 bankruptcy, says Jeremiah Heck, a debt and bankruptcy attorney.
Typically, you have to wait for a minimum of two years after your bankruptcy is approved by the courts to be eligible.
But in some cases, the mortgage lender may require additional time.
For instance, some banks tend to ask potential borrowers who filed Chapter 7 bankruptcy to wait a total of three years before they are eligible, adds Heck.
In addition to the waiting period, youll need to meet other FHA loan requirements. These typically include:
- Down payment of 3.5% or more
- Debt-to-income ratio below 50%
- Steady income and employment
- Income source expected to continue for three years
Avoiding any new debts after bankruptcy for example, a car loan or personal loan can help your chances of qualifying for an FHA mortgage once the two-year waiting period is over.
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After You’ve Filed For Chapter 13 Bankruptcy
Filing for Chapter 13 bankruptcy is a three- to five-year processbut that doesn’t mean that you can’t buy a house during that time. You can obtain an FHA loan before you complete your plan if you meet the following conditions:
- You’ve paid 12 months of plan payments.
- The court approves your request to purchase a house with an FHA loan.
- You can demonstrate that the reason you filed for bankruptcy is unlikely to occur again.
Keep in mind that the court might not be on board if you’d have to reduce the amount paid to your creditors in your plan to qualify for a home loan. And if you have to present the terms of the house purchase in your motion , you might have a hard time closing the deal. Many sellers would be unwilling to take their house on the market on the chance that you’ll obtain the necessary court approval.
If you’re considering this option, you should consult with a knowledgeable bankruptcy attorney before filing. A lawyer can advise you about the feasibility of a future loan qualification and, if possible, assist you by putting together a repayment plan that will help you reach your goal.
Buying A House After Bankruptcy: How Long Will You Need To Wait
You can buy a house one to two years after filing for bankruptcy if you rebuild credit and avoid new debt.
Filing a Chapter 7 or Chapter 13 bankruptcy will show on your credit report and negatively affect your credit score, but that does not mean you can’t own a home while you work to improve your credit. Waiting seven to ten years until the bankruptcy is off your record is out of the question for many people.
In some cases, filing for bankruptcy can actually be the first step towards purchasing a house. If you choose to work with a bankruptcy attorney, they often know real estate agents and mortgage lenders who have worked with people who have a bankruptcy on their credit history.
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Learn How Long It Takes To Get An Fha Va Usda Or Conventional Mortgage Loan After Chapter 7 Or Chapter 13 Bankruptcy
Filing for bankruptcy doesn’t have to put a damper on your home buying dreamat least not for long. Lenders have eased requirements, opening the door for bankruptcy filers to get back into a home sooner than in the past.
Currently, the average waiting period is two years. In this article, you’ll learn about common mortgage loans and the respective eligibility requirements for bankruptcy filers.
Whats The Difference Between A Bankruptcy Filing Date And A Discharge Date
The filing date is the day you file a petition with your local bankruptcy court. The discharge date is the day youre no longer liable for the debts included in your bankruptcy. This date could be a few months after the filing date or several years later, depending on whether you file Chapter 7 or 13.
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Check Your Credit Report
Lenders look at your credit reporta detailed report of your credit historyto determine your creditworthiness. Although bankruptcy filings can remain on your credit report for up to 10 years, it doesnt mean you have to wait 10 years to get a mortgage.
You can speed up the process by making sure your credit report is accurate and up to date. Its free to check: Every year, you are entitled to one free credit report from each of the big three Equifax, Experian, and TransUnion.
A good strategy is to stagger your requests, so you get a credit report every four months . That way you can monitor your credit report throughout the year. One of the best credit monitoring services could also be useful in this endeavor.
On your credit report, be sure to watch for debts that have already been repaid or discharged. By law a creditor cannot report any debt discharged in bankruptcy as being currently owed, late, outstanding, having a balance due, or converted as some new type of debt . If something like this appears on your credit report, contact the credit agency right away to dispute the mistake and have it corrected.
Other mistakes to look for:
- Information that is not yours due to similar names/addresses or mistaken Social Security numbers
- Incorrect account information due to identity theft
- Information from a former spouse
- Outdated information
- Wrong notations for closed accounts
- Accounts not included in your bankruptcy filing listed as part of it
How Are Exemptions Determined In A Chapter 7 Bankruptcy
Since your house must be considered exempt from the bankruptcy for you to have the most favorable scenario for keeping it, knowing how exemptions are determined is critical. State or federal homestead exemptions determine how your home is handled in a bankruptcy. While specifics will vary by state, heres how the exemption works.
Theres usually a certain period of time that you must live in the house before it can be considered for an exemption. For example, if you file under the federal statute, you must own the home for 40 months.
The second key determinant for an exemption is the amount of equity you have in the home, which requires knowing your home value. State and federal statutes let you exempt a certain amount of equity from being used by a trustee to pay off creditors and lenders. The exact amount that you can protect will vary from state to state.
Be sure to check the law in your state. Certain states allow you to double the amount of equity exempted if you file for bankruptcy jointly as a married couple.
Its especially important to remember that if you have so much equity that you fall above the exemption amount, your bankruptcy trustee may choose to sell your home to pay back creditors. Theyll pay you back for any exempted equity following the sale, but youll have to find a new home.
There are instances where you may have options in deciding which exemption rules apply, so speaking with your bankruptcy attorney is always wise.
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When You Want To Keep Your House
Most people who want to keep their home will make sure that they’re current on their mortgage payments before filing for Chapter 7 bankruptcy .
If you’re behind on your payment and need time to catch up on your arrears, a Chapter 13 bankruptcy is the better choice. You’ll be able to pay missed payments in your three- to five-year repayment plan.
Buying A House After Bankruptcy
Can I buy a house after bankruptcy? It is a common question trustees are asked. Most people are not able to afford to purchase a home outright and need to know how to get a mortgage after bankruptcy. The key is to ensure that you receive a discharge from the bankruptcy and that you are working on re-establishing your credit. Canada Mortgage and Housing Corp. will review your application as early as 18 months 2 years after discharge if you have re-established your credit. Therefore, it is possible to get a mortgage post-bankruptcy.
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What Are Fha Loans
FHA loans are mortgages backed by the Federal Housing Authority, designed for people who may have trouble getting a conventional loan because of a poor credit history or income. FHA loans have easier credit requirements and lower down payments.
Since the U.S. government backs the loans, lending institutions are more willing to offer them to applicants with poor credit scores, although the lower your credit score, the harder it can be to find a lender.
A borrower with a FICO score of 580 can qualify for an FHA mortgage with a down payment of 3.5% and someone with a 10% down payment can qualify with a 500 score. The lower the score, the higher the interest rate and the harder it may be to find a lender. While applying with a credit score less than 600 is possible, less than 2% of FHA mortgage borrowers had a credit score that low early in 2021.
The waiting period to get an FHA loan after a bankruptcy without extenuating circumstances is:
Chapter 7 Two years from the time of discharge.
Chapter 13 Two years if plan payments have been made on time and the trustee of the bankruptcy gives an OK.
Some banks have a three-year waiting period, which overrules the FHAs waiting period.
How Long After A Chapter 7 Can I Buy A House
If youre reading this, theres a good chance youve filed for Chapter 7 bankruptcy. Its during Chapter 7 that the court wipes away ones debt, leaving them with less than ideal credit.
You will need to wait at least four years after your bankruptcy is dismissed or discharged before qualifying for a mortgage. Not sure you can wait for that long? Then look into requirements for government-backed programs such as FHA, VA, and USDA loans.* You may be able to obtain a mortgage with one of these loans in just a few years following the discharge or dismissal of your bankruptcy.
*NOTE: FHA, VA, Conventional, and USDA loan requirements are subject to change. Non-QM loans may be temporarily unavailable. As a result of COVID-19, mortgage investors are unable to support as many loans, meaning underwriting guidelines for government and conventional loans are becoming more strict.
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S To Improve Your Credit Scores After Bankruptcy
Theres one thing thats true when applying for a mortgage, whether it comes after a bankruptcy or not credit score is king. The better the score, the quicker you will be approved and the lower the interest rate will be. The interest rate makes a huge difference in your monthly bill, as well as how much you pay over that 30 years.
The fastest way to repair your credit for a mortgage after bankruptcy is to make on-time payments on all debt, and to keep the amount you use to less than 30% of the credit limit, which is the credit utilization rate.
Payment history and credit utilization rate account for 65% of your credit score. Missed payments and overspending with credit cards are credit-score killers.
Other factors are length of credit history, credit mix and new credit. It helps your score if you have a variety of credit and can balance using credit cards youve had for years with using new ones.
The whole thing may seem a little abstract, but if you do the math on a 30-year mortgage the difference between a low and high score brings it into focus. On a $250,000 mortgage, a 3.5% interest rate means a $1,122.61 monthly payment. A 4.5% interest rate would mean a $1,266.71 monthly payment.
Thats a difference of almost $52,000 by the time the mortgage is paid off.
A bankruptcy will cause a credit score to plunge, but there are things consumers can do to lessen the impact.
This comes with a monthly fee, but the reduced interest rate more than makes up the difference.
Loans And Other Credit
After you have been discharged from bankruptcy, there is no legal waiting-time requirement that must be met in order to apply for most loans, such as personal loans or car loans. However, lenders will ask for your financial information, including whether you are employed, current debts and assets, in addition to obtaining credit reports which contain information about your credit history and bankruptcy. Therefore, before immediately applying for a loan after being discharged from bankruptcy, it is a good idea to spend some time on repairing your credit, which will increase your chances of getting a loan.
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