In this blog, we will cover and discuss the mortgage waiting period after foreclosure and bankruptcy. One of the frequently asked questions the team at Gustan Cho Associates often gets asked is the mortgage waiting period after foreclosure and bankruptcy. Mortgage waiting periods after bankruptcy depend on the bankruptcy type, Chapter 7 is more serious than Chapter 13 Bankruptcy. Waiting periods also depend on the type of mortgage. Most programs allow shorter waiting periods when the bankruptcy or foreclosure isn’t your fault. Waiting periods range from one day for non-prime loans to four or more years for conforming (Fannie Mae and Freddie Mac) mortgages.

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Conforming Mortgage Waiting Period After Foreclosure and Bankruptcy

Here are the waiting periods for conforming mortgages. Conforming mortgages are loans backed by Freddie Mac or Fannie Mae. They are the most popular mortgage programs in the US. However, the waiting periods following bankruptcy or foreclosure are longer than most.

Mortgage Waiting Period After Foreclosure and BankruptcyTo Qualify for a New Mortgage

The standard foreclosure waiting period for conforming mortgages is four years. It’s two years with extenuating circumstances (meaning you can prove that the bankruptcy was not your fault). The waiting period after Chapter 7 is four years from the discharge or dismissal date. If there are extenuating circumstances, the waiting period is two years.

Chapter 13 Bankruptcy Guidelines to Qualify for a New Mortgage

Chapter 13 waiting periods are two years from the discharge date and four years from the dismissal date. Note that Chapter 13 plans usually take five years to complete. In that case, you’d be looking at seven years from the filing date of a Chapter 13 bankruptcy to get a conforming mortgage.

Can I Qualify for a Mortgage with Multiple Bankruptcies 

If you file multiple bankruptcies in a seven-year period, your waiting period is five years.

What Are The Differences Between A Bankruptcy Dismissal vs Discharge

Your waiting period can vary depending on whether your bankruptcy was discharged or dismissed, Discharged means that you completed the process and paid everything you’re supposed to pay. Dismissal means you either failed to complete your bankruptcy or the judge or trustee threw out your petition.

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Government-Backed Mortgages

FHA, VA, and USDA home loans are generally more flexible post-bankruptcy than conforming lenders are.

What Are The Mortgage Waiting Period Requirements to Qualify for a Mortgage After A Prior Foreclosure

The foreclosure or deed-in-lieu of foreclosure waiting period for FHA or USDA loans is three years. It’s two with VA loans as long as you re-establish credit.

What Are the Waiting Period to Qualify for a Mortgage After Chapter 7 Bankruptcy

You can get an FHA loan two years following a Chapter 7 discharge or dismissal. With extenuating circumstances, you may be able to get a loan a year after discharge. You’re eligible to apply for a VA loan to years after Chapter 7 dismissal. USDA loans require three years.

What Are The Waiting Period Requirements to Qualify for a Mortgage During and/or After Chapter 13 Bankruptcy

All government programs allow you to apply for a home loan after making 12 on-time monthly payments into your Chapter 13 plan if the bankruptcy trustee approves.

Mortgage Waiting Period After Foreclosure and Bankruptcy on Non-QM or Non-Prime Mortgages

Non-QM loans are loan programs that lenders create with their own guidelines. When lenders keep these loans on their own books and don’t sell them to investors, they call these products “portfolio” loans. And portfolio loans cater to borrowers with credit problems like bankruptcy or housing events like foreclosure, lenders call them “non-prime” loans. You can find non-prime loans allowing borrowers who are one day out of bankruptcy or foreclosure. Expect to put at least 25% down and to pay an interest rate at least 2% higher than that of a prime loan.

Shortening the Mortgage Waiting Period After Foreclosure and Bankruptcy: Extenuating Circumstances

Most programs allow a shorter waiting period if you can document extenuating circumstances.  But what are extenuating circumstances? Extenuating circumstances are beyond your control. The death of the family wage earner, a serious illness, or an employer going out of business can be considered extenuating.

Factors That is Not Considered Extenuating Circumstances

In most cases, divorce or the inability to sell your home is not an extenuating circumstance. You must be able to prove extenuating circumstances with written documentation. Your chances are better if you had good credit before the event and re-established credit after the event. A good loan officer can help you show that the credit problem was out of your control, that it’s unlikely to happen again and that you have re-established credit or decided not to use credit. If you have late payments after a bankruptcy, you’ll have a hard time getting a new mortgage.

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