When Can You Get A Mortgage After Chapter 7

Buying A House After Bankruptcy: How Long Will You Need To Wait

By FindLaw Staff | Reviewed by Bridget Molitor, J.D. | Last updated June 30, 2021

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.

Mortgage Liens Are Voluntary Liens Not Involuntary Liens

A lien can be voluntaryâyou agreed to the lienâor involuntary. The difference matters because most voluntary liens are limited to a particular asset, such as a home, car, or boat. For instance, a mortgage lien applies to the house purchased with the home loan.

However, an involuntary lien might extend to more assets. Here’s how voluntary and involuntary liens work.

Voluntary liens. Typically, secured creditors include mortgage companies and car lenders. In both transactions, the borrower voluntarily agrees to guarantee the loan by giving the lender an interest or lien in the property purchased or “collateral.” For instance, when taking out a home loan, the borrower provides the lender with a lien by agreeing to put up the house as collateral.

If the homeowner falls behind on the payment, the bank can initiate a foreclosure proceeding, sell the home at auction, and use the proceeds to pay down the loan. A car buyer gives a lender similar lien rights when financing a vehicle. If the borrower doesn’t pay as agreed, the creditor repossesses the car, sells it at auction, and applies the money toward the loan balance.

Involuntary liens. Not all liens are voluntary. If you fail to pay your income taxes, the federal government can obtain an “involuntary” lien without your consent. An involuntary “judgment lien” can be created after an unsecured creditor files a collection lawsuit in court and wins a money judgment.

Can Bankruptcy Get Rid Of My Mortgage Debt

Chapter 7 bankruptcy will likely eliminate your mortgage debt, but this means youll have to give up your home unless it qualifies for an exemption. Your lender still has the right to foreclose on the home to recover as much of the original mortgage amount as possible.

With Chapter 13 bankruptcy, youre able to retain assets like your home. Youll have a new plan in place to repay your debt. Just be sure youre making on-time payments, or youll put yourself at risk of foreclosure.

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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.

Chapter 7 Vs Chapter 13

A Chapter 7 bankruptcy indicates the debtor is seeking to liquidate their assets and wipe away all debt. The bankrupt party emerges from the process with a fresh start and a significantly impaired credit history. Some creditors can claim security interests.

For example, your auto loan is secured by your car, and your mortgage by your home, so those assets will be sold, and the proceeds paid to satisfy those debts. You may have the option of keeping your home if you can reaffirm your debt. This allows you to keep making payments and not include it in the bankruptcy. Unsecured creditors generally get very little of what theyre owed.

In a Chapter 13 bankruptcy, debtors seek a reorganization of their debts and commit to strict repayment plans. Debtors must make payments to creditors, but they dont lose all their assets and they dont take as hard of a hit to their credit. Thats because creditors reward debtors who are committed to paying their debts.

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The Bottom Line: You Can Buy A House After Bankruptcy

As with any major financial hit, theres a road to recovery. If youre diligent and disciplined, you can put your bankruptcy behind you and successfully secure a mortgage.

Get started with Rocket Mortgage® today to get preapproved or discuss your options with one of our Home Loan Experts at 452-0335.

How Long After Chapter 13 Discharge Can I Get A Mortgage

In the case of conventional loans with a Chapter 13 bankruptcy, you must wait 4 years from the date of filing and 2 years from the date of discharge before applying for a conventional loan.

Can you buy property while in Chapter 13?

While the trustee must approve the transaction beforehand, you can buy or sell a home while in Chapter 13 bankruptcy. You should be prepared for a lot of extra paperwork and additional time for appropriate approvals, but Chapter 13 should not prohibit you from making these decisions.

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Fha Versus Conventional Mortgage After Chapter 7 Bankruptcy Guidelines

Dale Elenteny is an associate contributing editor for FHA Lend Mortgage. Dale is a 20-plus-year veteran in the mortgage industry. Dale Elenteny is an expert on FHA, VA, USDA, Non-QM, and Conventional loans. The good news for homebuyers who had a mortgage part of bankruptcy is that there is a four-year waiting period to qualify for a Conventional loan from the discharged date of their chapter 7 bankruptcy regardless of when the actual recorded date of the foreclosure is.

Conforming Mortgage Loan Requirements

Fannie Mae and Freddie Mac the national rulemakers for conforming loans allow Chapter 7 filers to apply for a Fannie Mae or Freddie Mac mortgage after bankruptcy. But the wait is four years after their discharge or dismissal .

The waiting period for Chapter 13 bankruptcies is two years. But this is two years after discharge, not filing. Since Chapter 13 bankruptcies typically take five years to discharge, your total waiting period under a conforming mortgage program would be seven years from the filing date.

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Types Of Mortgages For Which You Might Qualify

While getting a conventional loan might seem like a good idea, you may benefit by getting government-backed loans under different circumstances.

Conventional LoansYou might qualify for a conventional mortgage through a bank or a credit union depending on your creditworthiness and the down payment amount. If your down payment is less than 20% of the homes selling price, you will need to get private mortgage insurance .

FHA LoansProvided and managed by the Federal Housing Administration, FHA loans give you the ability to pay as little as 3.5% down payment. However, you will then need to pay extra toward PMI.

VA LoansThe Department of Veteran Affairs provides VA loans to military veterans, serving members, and surviving spouses of veterans. If you are eligible, you may get a VA loan without making any down payment. In addition, you dont have to pay extra for PMI.

USDA LoansThe U.S. Department of Agriculture provides USDA loans meant particularly for rural borrowers who meet minimum income requirements. These requirements vary based on where you live, the number of people in your household, as well as your age. Applicants need to meet other eligibility criteria as well. If you are eligible, you may qualify for a zero down payment loan. While you wont need to get PMI, you will need to pay extra toward an upfront guarantee fee and an annual fee.

How Bankruptcy Can Affect Your Ability To Get A Mortgage

Bankruptcy can significantly lower your credit scores, remain on your credit reports and affect your ability to obtain credit, including a mortgage loan, for up to 10 years. Fortunately, its impact lessens over time.

For a lender to even consider you for a mortgage after bankruptcy, your bankruptcy must be discharged. A bankruptcy discharge is a court order that eliminates your debts. In addition to making sure your bankruptcy has been discharged, a lender will look at your credit report to determine your creditworthiness.

It’s a good idea to check your credit report before you apply for a home loan to make sure it’s accurate. Look for mistakes such as incorrect or outdated information or accounts that were not included in your bankruptcy filing that are listed as part of it. Be sure to contact the credit agency as soon as possible and dispute any errors you find.

When you do begin to apply for a mortgage after bankruptcy, your lender will likely ask you a few questions about your bankruptcy. They may ask you when your case was discharged, what you’ve done to establish new credit, and how you’ve been keeping up with your bills. It’s a good idea to have the answers to these questions ready beforehand so that the application process runs smoothly.

Let’s dive deeper into how each type of bankruptcy can affect your ability to get approved for a mortgage.

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How Often Can Get A Mortgage After Chapter 7

Everyone wants to take loans as soon as possible. They are eager to know about the question How sooner can get a mortgage after chapter 7? Honestly speaking, you will not be able to apply for a mortgage immediately after having your debts dismissed by bankruptcy. Typically, there is a waiting period before any lender will consider you because lenders will base their decision on your financial behavior. Moreover, they will base their decision on the period following your bankruptcy.

Rebuilding Your Credit:

Rebuilding your credit after bankruptcy is something that could start on the day you get your discharge papers. If you do that, within two years, you will qualify for excellent rates on a new mortgage. There are three waiting periods for the different kinds of mortgage loans. These mortgage loans include conventional loans, FHA and VA loans, or USDA loans.

VA Mortgage Loans:

The department of veteran affairs provides VA loans. If you like to take VA loans, know how long you can buy a house after chapter 7 by VA loans? In these types of loans, there is no requirement for a down payment. VA mortgage loan needs two years waiting period after the dismissal of the chapter7. During the waiting period time, you will need to keep your credit clean. This is because most lenders participating in the VA program will need a minimum credit score. Moreover, members of the military veterans should also be aware of some special bankruptcy rules.

Conventional Loans:

Real Estate Diary:

Angel Oak Mortgage Solutions

The non-prime program offered by Angel Oak does not have any seasoning requirements for bankruptcies, foreclosures, or short sales. This means that you can be only 1 day out of bankruptcy, and still may qualify. As for credit score requirements, they often allow credit scores all the way down to a 500! The maximum LTV allowed is 85%, so be prepared to put 15% down if you qualify for a loan through Angel Oak.

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Mortgage After Chapter 13 Discharge

Getting a mortgage after a chapter 13 discharge is a bit different in that you may be able to get approved with less than a 2 year waiting period. With a chapter 13 bankruptcy, you are committing to paying back your debt and will likely be on a payment plan. It is important that you stick to the plan and make your payments on time.

We have a handful of FHA lenders in our network who will finance your home with an FHA loan after you have made at least 12 on time Chapter 13 bankruptcy payments. This can be done well before the loan has been discharged. If you would like to get approved for an FHA loan without waiting until 1 year after your discharge, then we can help.

There are also nonprime lenderswho are willing to finance your home immediately after a chapter 13 bankruptcy discharge. They will look at your credit scores to determine what the down payment and interest rate will be.

You may also have the ability to get an FHA loan with a chapter 13 bankruptcy without waiting the full two years.

Chapter 13 Bankruptcy Waiting Periods

The waiting period to buy a home after a Chapter 13 bankruptcy ranges from zero days to two yearsdepending on your mortgage type.

From the date of discharge:

• FHA loans: No waiting period
• VA loans: No waiting period
• USDA loans: 1-year waiting period
• Conventional loans: 4-year waiting period

A typical Chapter 13 bankruptcy period lasts between three and five years, depending on the amount of debt and the debtors annual income.

With a Chapter 13 bankruptcy, your credit isnt affected as much as Chapter 7, which stays on a credit report for seven years.

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Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can’t skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you’ll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

Fannie Freddie And Ginnie

Most conventional loans in the United States are owned by or insured by the government-sponsored enterprises Fannie Mae, Freddie Mac, or Ginnie Mae. These backers have similar loan eligibility requirements for borrowers who have filed bankruptcy cases. These are guidelines. Your mortgage lender or mortgage broker can help you with the specifics.

In addition to a waiting period, these organizations require that borrowers demonstrate they have re-established credit after the bankruptcy.

Chapter 7: The waiting period is 4 years, or 2 years with extenuating circumstances . An example of extenuating circumstances would be a layoff and extended unemployment, or medical issues.

Chapter 13: The waiting period is 2 years from discharge and 4 years from dismissal, or 2 years from dismissal with extenuating circumstances.

If you have more than one filing within the past 7 years, the waiting period is 5 years from the most recent discharge or 3 years with extenuating circumstances.

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Fha Loan After A Chapter 7 Bankruptcy

Below are some of the basic requirements to get an FHA loan after a chapter 7 bankruptcy discharge:

• The mandatory waiting period to get an FHA loan after a chapter 7 bankruptcy is 2 years.
• FHA loans required a borrower to have a credit score of 500 or higher.
• The minimum down payment on FHA loans is 3.5%. However, in order to be eligible for a 3.5% down payment, you must have a credit score of 580 or higher. With a credit score between 500-579, a borrower will need to put 10% down.

Would you like to learn more about therequirements to get an FHA loan?

Or, if you would like to be contacted by an FHA lender, please fill out this form.

Can I Get A Mortgage After Chapter 7 Bankruptcy

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In a Nutshell

Yes, you can get a mortgage after a Chapter 7 bankruptcy. Lenders have their own requirements and waiting periods.

Written byAttorney Eva Bacevice.

Yes! You donât have to give up on the American dream of becoming a homeowner just because you filed a bankruptcy. You can absolutely get a mortgage after a Chapter 7 bankruptcy. The larger question is when are you able to qualify for a mortgage, which can vary based on the type of loan you are pursuing.

In general, for most loans you are eligible two years after you receive your discharge in a Chapter 7 case. Below weâll examine the different types of real estate loans and their guidelines, and offer suggestions for steps you can take to best prepare for your home purchase.

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How To Get A Mortgage After Bankruptcy

Getting a home loan after bankruptcy is possible, but it will require patience on your part. Youll also need to take steps to increase your chances of mortgage approval after bankruptcy.

A bankruptcy will lower your significantly which signals to creditors that you are a lending risk. And it will impact your score for years to come. A Chapter 7 bankruptcy remains on your credit report for up to 10 years, while a Chapter 13 remains for up to seven years.

While you dont need to wait for a bankruptcy to disappear from your credit report to get a mortgage, you must adhere to a waiting period before applying. How long youll have to wait depends on the type of bankruptcy you file, as well as the type of mortgage you plan to get. If extenuating circumstances are present such as a divorce, job loss, illness, death of a primary earner or other unforeseeable events you may qualify for a home loan sooner.

Heres a brief overview of how long youll need to wait to apply for a mortgage after Chapter 7 and Chapter 13 bankruptcy.