How Soon Can I Qualify For A Mortgage After Bankruptcy
Kyra Baker is a fact-checker with nearly 10 years of experience working and assisting on editorial projects within the culture, arts, and publishing spaces. For the past eight years, she has worked as a fact-checker at Art Papers Magazine, an Atlanta, Georgia-based art magazine. Kyra has also fact-checked and edited for The Rosarium Publishing, the publishers of the science fiction anthology, “Mothership: Tales from Afrofuturism and Beyond.”
Filing bankruptcy doesnt mean youll never qualify for a mortgage. One reason to file a bankruptcy case is to eliminate burdensome debt so you can get a fresh start. Some lenders, such as credit card and even certain car loan creditors, will take a chance on you right after you emerge from bankruptcy.
Mortgage lenders and guarantors want to ensure they wont compromise resources by lending to someone whos not ready for the responsibility of home ownership. Therefore, they usually wont approve loans right after the borrower gets a bankruptcy discharge. There could be a waiting period of up to 5 years.
Youll pay a higher interest rate, and the terms may not be as favorable as you like, but some for most former bankruptcy debtors. Mortgages are a different story.
What Are My Chances Of Getting A Mortgage After Bankruptcy
Many people are able to keep their homes when they file an Assignment in bankruptcy. When you file an Assignment in bankruptcy it is the job of the trustee to maximize the realization for your unsecured creditors. This includes your home, if there is any equity in the property. Equity is the difference between what the house is worth and what is owing on the house, such as a mortgage, property tax etc. If the value of the house is approximately equal to what is owing on the house, the trustee may allow you to keep the house and continue making the payments. Therefore allowing you to keep your mortgage after bankruptcy.
If there is some equity in your property, the trustee still may allow you to keep your home on the condition that you contribute the amount equal to what the equity is worth into your bankruptcy estate .
There Is One Thing That Mr Larose Did Caution About
While the servicing company does not give the courts an accounting of any remaining funds available to the borrowers on their existing reverse mortgages on credit lines and under monthly payment provisions, borrowers cannot receive funds from their reverse mortgage during the bankruptcy proceeding.
This is since the Bankruptcy Trustee must approve any funds the borrower receives during this time as borrowers are prohibited from incurring new debt during the Bankruptcy period.
Mr. LaRose warns that borrowers planning to file for protection under the bankruptcy laws and then live off their reverse mortgage proceeds may be in for a big surprise when they find out that they cannot obtain any additional funds until the Bankruptcy has been completed.
This is another area that reverse mortgage borrowers should discuss with their attorneys before they file.
But it is comforting to get the facts in lieu of the myth when it comes to Bankruptcies and existing reverse mortgages.
As we stated in the beginning, this is not legal advice though, be sure to consult your attorney before you do anything which may affect your individual circumstances!
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Mortgage After Bankruptcy With An Alternative Mortgage Lender Or B Lender
An alternative lender will work with you as early as one day after your bankruptcy discharge, and with little or no re-established credit. However, in exchange for this flexibility, what they will look for is the following:
1. Your down payment will need to be at least 20% of the purchase price of your home. If you have 25% down, or more, that will give you more options. In Mississauga, Etobicoke, and the Greater Toronto Area, this can be a sizeable chunk of cash, so youll want to be prepared.
2. Your costs will be higher with a B lender than with a mainstream lender. First, your interest rate will be a bit higher how much higher depends on the big picture of your overall financial situation, how large your down payment is, and how good your re-established credit is. You can expect to add at least one percentage point over mainstream rates, possibly more. Second, you can expect to pay a lender commitment fee typically around 1% of your mortgage value similar to the Genworth or CMHC mortgage insurance fee mentioned above. If your down payment is more than 20%, you might be able to add the commitment fee to your mortgage rather than paying this out of pocket, but this is up to the lender.
Keep in mind that your alternative mortgage lender or B lender is exactly that: an alternative, or a stepping stone to get you where you want to go.
Chapter 13 Bankruptcy Doesnt Ruin Your Mortgage Chances
If you filed for Chapter 13 bankruptcy or were recently discharged, you might wonder whether you can buy a new home or refinance.
The good news is, getting a mortgage is easier after Chapter 13 bankruptcy than Chapter 7.
You might even qualify while youre still in Chapter 13. Governmentbacked FHA, VA, and USDA loans let you apply for a mortgage as early as one year into your repayment plan.
Keep in mind, you need to make those payments on time. And you still need to meet loan requirements.
But if you meet these guidelines, you should have a good shot at getting a mortgage during or after Chapter 13.
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Discuss Your Options With A Mortgage Professional
If you do wish to purchase a home, and you have a bankruptcy or consumer proposal in your past, the most important recommendation I have is not to rush into anything. Same goes for re-financing a mortgage after bankruptcy. Talk to a knowledgeable mortgage professional who is experienced in helping people get a mortgage after bankruptcy. They will help you to understand and evaluate your options, and figure out which one is best for you.
If youd like to do more reading about credit, check out my articles on Establishing Credit and Repairing Bruised Credit. And Im always happy to answer any questions you might have for me, with no obligation. Please dont hesitate to get in touch with me if youre in the GTA and youd like to talk about your own situation.
I wish you happy home buying!
How Do Bankruptcies Affect A Joint Mortgage
If one person files for bankruptcy, that can have an impact if you both are on the mortgage. There are instances where one persons bankruptcy can cause issues with keeping the home, even if more than one of you is on the mortgage. In order to be fully apprised of what can happen, talk to your attorney.
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Va And Usda Loans With Chapter 13 Bankruptcy
Like FHA loans, VA and USDA loans are backed by the federal government. And they have similar rules about qualifying with Chapter 13.
- You must be at least 12 months into your repayment plan, with ontime monthly payments
- You need written approval from the court or bankruptcy attorney to apply for the loan
- You need to meet loan program guidelines
If you completed your full Chapter 13 plan and the court has discharged you, there are no special criteria to apply for a VA or USDA loan.
Both these loan programs have similar benefits. No down payment is required, and mortgage rates tend to be very low.
To qualify for a VA loan, you must be an eligible veteran, service member, or surviving spouse.
The Department of Veterans Affairs technically does not set a minimum credit score for these loans. But most lenders require a FICO score of at least 580620.
USDA loans are meant for low to moderateincome home buyers in qualified rural areas.
These loans are very affordable, but a bit harder to qualify for. Youll need a FICO score of at least 640 for a USDA loan. Borrowers in Chapter 13 might have more luck with an FHA mortgage.
What Lenders Will Approve A Loan During Chapter 13
VA, USDA, and, sometimes, FHA loans are available during Chapter 13 bankruptcy. Most major lenders are authorized to do FHA and VA loans. USDA mortgages are a little harder to find.
Remember that mortgage lenders can set their own lending rules. Some may be more amenable to borrowers with Chapter 13 than others.
In addition, youll have better luck if youre not borderline meaning youre firmly eligible for the type of loan you want.
If youre right on the edge of qualifying for instance, if your score is exactly 580, you have lower income, and you want an FHA loan it could be tougher to get approved.
Youll need to shop around and compare your options.
All mortgage borrowers should shop for their best interest rate. But for borrowers with Chapter 13 this is doubly important.
Youre not just shopping for a good deal youre shopping for a lender thats willing to approve you.
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After A Chapter 7 Bankruptcy Discharge
In most cases, you’ll need to wait two years from the date of your Chapter 7 bankruptcy discharge before you’ll qualify for this loan. Keep in mind that a discharge date isn’t the same as the filing date. The court sends out the bankruptcy discharge paperwork just before your case closes.
- Meeting credit requirements won’t be as much of a hurdle as you might think. If you open new credit accounts after your bankruptcy, you’ll need to show that you’ve established a good credit history by paying your payments on time.
- How to avoid the credit score requirement. FHA has another ruleyou can qualify by choosing not to open any credit accounts after bankruptcy.
- Speeding up the process using the 12-month exception. At times, people file for bankruptcy due to no fault of their own. If you fit into this category and can demonstrate that filing for bankruptcy was beyond your control, you might be able to reduce the waiting period to twelve months. Additionally, you’ll need to show that you’ve handled your financial affairs responsibly after the bankruptcy.
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
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Time Required After Bankruptcy Before You Can Buy A House With A Mortgage
The first requirement for applying for a mortgage after filing for bankruptcy is to wait for the judge overseeing your case to discharge or dismiss your bankruptcy. The exact waiting times necessary for getting mortgage loans after filing for bankruptcy depend on the following factors:
- Type of bankruptcy and
Bankruptcy usually is of two different types, which are as follows:
Which Mortgage Lenders Accept Bankruptcy
Although there isn’t a huge number of lenders who will consider applicants who have previously been bankrupt, they do exist. In the table below we have listed the top-4 lenders for people who have been bankrupt. The assessment is based on the mortgage products they offer, the criteria they will accept and the level of deposit that is required.
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How Can You Still Get A Mortgage Loan With A Bankruptcy
Owning a home still represents the American dream if you’ve had to file for Chapter 7 or Chapter 13 bankruptcy, though, it might feel as if that dream is out of reach. Filing for bankruptcy can devastate your credit score. When mortgage lenders see a low score and a bankruptcy on your credit reports, they’re far less likely to approve you for a mortgage loan. Lenders view you as a high risk to default on their loans. Fortunately, you can qualify for a home loan, even if you have a bankruptcy in your past. It just requires a bit of extra work.
Wait at least three years after filing for bankruptcy before applying for a mortgage loan. Bankruptcies will dramatically lower your credit score as soon as you file. But their impact lessens over time. The longer you wait after a bankruptcy to apply for a home loan, the less negative pull the bankruptcy will exert on your credit score. Remember, Chapter 7 bankruptcy filings stay on your credit report for 10 years, while Chapter 13 filings remain on it for seven.
Rebuild your credit score, starting immediately after you file for bankruptcy. You rebuild poor credit by paying all your bills on time each month. You can also boost your credit scores by opening new credit card accounts or taking out auto loans–if you can receive approval for them–and making your payments on time.
Can You Buy A House After Chapter 7 With A Co
Yes, having a co-signer can improve your chances of getting a mortgage after a bankruptcy. But its far from a sure thing. Since lenders typically use the lower credit rating of the co-signer and applicant, you could still be facing an uphill battle.
Lets say you do find a mortgage lender whos willing to proceed with your loan because you have a co-signer. In this case, its important that your friend or family member understands the risks involved with co-signing your application. This person is basically responsible for making loan payments if you default at any point.
Something else we should probably mention a co-signer and a co-borrower are not the same.
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Can You Get A Home Loan If Your Spouse Filed For Bankruptcy
Buying a house can be the first step in an exciting fresh start, particularly if you or your spouse has recently had financial troubles. A spouse’s bankruptcy might make buying a home more challenging, but does not render it impossible. By taking time to improve your spouse’s credit and being willing to find creative solutions, you can get a loan for the home of your dreams.
What About Multiple Bankruptcies
The governmentbacked mortgages do not mention multiple bankruptcies in their guidelines. Conforming loan underwriting does consider them, however, if you file more than once during the most recent seven years. The guidelines read:
For a borrower with more than one bankruptcy filing within the past seven years, a fiveyear waiting period is required, measured from the most recent dismissal or discharge date.
But those with documented extenuating circumstances get a break. The extenuating circumstances must apply to the second bankruptcy. because it would be pretty hard to prove that the problem is unlikely to recur if it already has. Fannie Mae says:
A threeyear waiting period is permitted if extenuating circumstances can be documented, and is measured from the most recent bankruptcy discharge or dismissal date. The most recent bankruptcy filing must have been the result of extenuating circumstances.
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United States Department Of Agriculture Loan
Low- and middle-income borrowers willing to purchase a home in a rural community will benefit from this loan. It offers a low-interest, no down payment option for those who might not otherwise be able to qualify for conventional financing.
Applicants will be eligible for this loan three years after receiving a Chapter 7 discharge. However, if you qualify for the exceptional circumstances exceptionfor instance, by demonstrating that the bankruptcy was beyond your control and not a result of financial mismanagementyou might be able to qualify as soon as 12 months after the discharge.
A Chapter 13 bankruptcy filer can apply after 12 months of successful plan payments, or sooner on a showing of exceptional circumstances. To find out more, visit the United States Department of Agriculture Rural Development website.
Time Since Your Bankruptcy
When asking Can you get a mortgage if you are bankrupt? the first factor to consider when applying for a mortgage is how much time has passed since you filed for bankruptcy. The required amount of time differs from lender to lender but in the best case, it is two years. This can become five or more, based on your current credit state. If your credit status since bankruptcy is good, then the required amount of time may be reduced.