This guide covers mortgage loan options with bad credit after bankruptcy on home purchase and refinance loans. One of the frequently asked questions from our viewers is can I qualify and get approved for a mortgage with bad credit after bankruptcy? The answer is yes.
Depends on the mortgage loan program and the down payment. Homebuyers can qualify for mortgage loans after a bankruptcy, whether it was a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy. There are strict minimum waiting periods after Bankruptcy to qualify for mortgage loans.
There are mandatory waiting period mortgage lending guidelines after bankruptcy on government-backed loans and conforming loans.
HUD. the parent of FHA, requires a minimum of a 2 year waiting period after Chapter 7 Bankruptcy discharge date. Fannie Mae and Freddie Mac require a minimum 4 year waiting period after a Chapter 7 Bankruptcy discharge date to qualify for Conventional Loans. There is no waiting period after a Chapter 13 Bankruptcy discharged date to qualify for FHA loans.
However, any FHA loans after a Chapter 13 bankruptcy discharge that has not been seasoned for at least two years needs to be done via manual underwriting. If borrower has a Chapter 13 Bankruptcy dismissal, then the mandatory waiting period is two years to qualify for a FHA loan after dismissal. In this article, we will discuss and cover bad credit after bankruptcy mortgage lending guidelines.
Bad Credit After Bankruptcy
Bad credit after bankruptcy is really bad. Most mortgage lenders will not approve home loans for borrowers who had bad credit after bankruptcy because they consider them second offenders. However, one or two late payments after bankruptcy is not always a deal breaker. However, borrowers with bad credit after bankruptcy should be prepared to find challenges when applying for a mortgage loan. Non-QM loans are non-prime loans that is lenient on bad credit after bankruptcy. Get Qualify for Mortgage Loans with Bad Credit After Bankruptcy
Getting a Mortgage With Bad Credit After Bankruptcy
Getting a mortgage with bad credit following bankruptcy can be challenging. However, there are options available to help individuals re-enter the housing market. In the following paragraphs, we will cover some loan options and strategies to consider if you find yourself in a situation to get approved for a home loan with bad credit after bankruptcy.
FHA Loans With Bad Credit After Bankruptcy
FHA loans is the best loan program for borrowers with low credit scores. Low Credit Score Requirements: FHA loans are lower credit score borrowers, making them a good option for those with bad credit.
HUD Guidelines Post-Bankruptcy Waiting Period
There is a two-year waiting period after Chapter 7 before applying for an FHA loan. You may apply for a Chapter 13 bankruptcy after the court confirms the repayment plan if you have made at least 12 months of plan payments and the court permits you to incur new debt. HUD, the parent of FHA loans, requires a minimum down payment of 3.5% if your credit score is 580 or higher on FHA loans. You might still qualify if your score is between 500 and 579, but you’ll need a 10% down payment.
VA Loans Bad Credit After Bankruptcy
For Veterans and Service Members: If you are a veteran, active-duty service member, or eligible surviving spouse, VA loans can be a great option. The Department of Veterans Affairs backs VA loans.
No Minimum Credit Score on VA Loans
Officially, VA loans do not have a minimum credit score requirement. However, lenders might impose their credit score criteria. Many borrowers often run into advertisements from mortgage lenders with VA loans or Veterans on their names but these lenders have minimum credit scores of 620 to 640 FICO. It is not the VA that has a minimum credit score requirement but the the individual mortgage lender itself. There are no minimum credit score requirement on VA loans.
Bankruptcy Waiting Period on VA Loans
The waiting period for a VA loan is typically two years after a Chapter 7 bankruptcy discharge. For a Chapter 13 bankruptcy, you may qualify 12 months after filing if you’ve made your plan payments on time and the court approves.
No Down Payment on VA Loans
VA loans do not require a down payment, which is a significant benefit. Lenders can offer VA loans with 100% financing at competitive rates. If the borrower with a VA loan defaults and forecloses on their VA loan, the Department of Veteran Affairs will insure the loss of the VA loan to the mortgage lender. Get Qualify for VA Loans with Bad Credit After Bankruptcy
USDA Loans
USDA loan is for eligible borrowers in homes in rural areas only. Aimed at rural property buyers, USDA loans require no down payment and are backed by the United States Department of Agriculture. While there are credit score requirements, they are generally more flexible than conventional loans. The post-bankruptcy waiting period is typically three years, but this can be reduced under certain conditions.
Conventional Loans With Bad Credit After Bankruptcy
Conventional loans require higher credit scores. Conventional loans are often referred to as conforming loans because they need to conform to Fannie Mae or Freddie Mac guidelines. Conventional loans are not government-insured. Conforming loans require higher credit scores. However, some lenders may be willing to work with borrowers with lower scores.
Non-QM Loans With Bad Credit After Bankruptcy
Homebuyers can qualify for a mortgage with bad credit with non-QM loans. Non-QM loans allow late payments in the past 12 months. You can qualify for non-QM loans with no waiting period after bankruptcy or foreclosure. Non-QM loans require larger down payment. However, non-QM loans are more lenient on bad credit after bankruptcy than any other government or conventional loan programs.
Fannie Mae and Freddie Mac Bankruptcy Waiting Period on Conforming Loans
The period after a Chapter 7 bankruptcy is usually four years for conventional loans. After a Chapter 13 bankruptcy, it’s two years from the date of discharge or four years from the date of dismissal.
Strategies to Improve Your Mortgage Approval Odds
There are quick fixes to improve and boost your credit scores. You can qualify for a mortgage with bad credit. However, you cannot qualify for a mortgage with late payments in the past 12 months.
Rebuild Your Credit: Take steps to rebuild your credit by securing a secured credit card, becoming an authorized user on another person’s credit card, or getting a credit-builder loan. Make all payments on time and keep your credit utilization low.
Save for a Down Payment: Larger down payments can make you less risky to lenders. Saving for a bigger down payment can also help compensate for your low credit score.
Reduce Debt-to-Income Ratio: Pay down debts to improve your debt-to-income ratio. This shows lenders that you have more budget flexibility to handle a home loan.
Consider a Co-Signer: A co-signer with good credit can help you qualify for a mortgage or get better terms than you might on your own.
While obtaining a mortgage with bad credit after bankruptcy is challenging, it’s not impossible. Government-backed loans like FHA, VA, and USDA loans offer more flexible terms that can help individuals in these circumstances. Additionally, rebuilding credit, managing finances wisely, and understanding the waiting periods after bankruptcy will enhance your chances of obtaining a mortgage. Get Qualify for Mortgage Loans with Bad Credit After Bankruptcy
Waiting Period After Bankruptcy on Conventional Loans
There is a 2 year waiting period to qualify for a Conventional Loan after a Chapter 13 Bankruptcy discharge date: There is a four year mandatory waiting period to qualify for a conventional loan after a Chapter 13 Bankruptcy dismissal date. Qualifying for mortgage loans with bad credit after bankruptcy can be challenging. Most lenders do not allow bad credit after bankruptcy. There are a few lenders like myself that will consider borrowers with bad credit after bankruptcy.
Qualifying For Mortgage After Bankruptcy
Meeting the mandatory waiting period after bankruptcy does not guarantee you a mortgage loan approval after bankruptcy. Borrowers can meet the waiting period after bankruptcy requirements and the minimum credit scores to qualify for a mortgage loan as well as meet the debt-to-income ratio requirements. However, borrower’s overall credit history will be carefully analyzed and reviews.
Most lenders will not consider any borrowers who had late payments after bankruptcy even though they may have high credit scores and great documented income.
However, I can approve borrowers with bad credit after bankruptcy on a case by case scenario. If borrower has bad credit after bankruptcy due to financial irresponsibility, then no lender will approve borrower. However, if the borrower had bad credit after bankruptcy due to extenuating circumstances, then the mortgage underwriter will consider that and take that into consideration.
Examples of Bad Credit After Bankruptcy
If mortgage loan applicants has just a few late payments after bankruptcy, they are not out of qualifying for a mortgage loan. Each late payment will be evaluated on a case by case basis.
Regarding lates after Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, short sale, deed-in-leu of foreclosure, or foreclosure, the loan application is evaluated and analyzed on a case by case basis. Depends on type and amount of lates, reason for late payments and the whole mortgage loan file profile. So it will be up to the mortgage underwriter to determine if the borrower is credit worthy.
Overdrafts will be questioned, again case by case. If borrower shows constant over drafts that could be an issue depending on reasons. Again case by case and underwriter determination.
If you have had bad credit after bankruptcy and are told that you do not qualify by banks and mortgage lenders, please contact me at 800-900-8569 or text us for a faster response. Or email us at Gustan Cho Associates at gcho@gustancho.com. We have no overlays on FHA Loans and Conventional Loans and we are an extremely aggressive lender where we want to close loans. Get Qualify for Mortgage Loans with Bad Credit After Bankruptcy
FAQ About Mortgage Loan Options With Bad Credit After Bankruptcy
- 1. Can I qualify for a mortgage after bankruptcy? Yes, qualifying for a mortgage after bankruptcy is possible, depending on the type of bankruptcy filed (Chapter 7 or Chapter 13), the mortgage loan program, and the down payment available.
- 2. What are the waiting periods after bankruptcy for different types of loans?
- FHA Loans: Minimum of 2 years after a Chapter 7 discharge; no waiting period after a Chapter 13 discharge, but loans must be manually underwritten if less than two years have passed.
- VA Loans: Generally, 2 years after a Chapter 7 discharge and 12 months after filing a Chapter 13 if plan payments are made on time and the court approves new credit.
- USDA Loans: Typically 3 years after a Chapter 7 discharge.
- Conventional Loans: After Chapter 7 discharge, 4 years. After Chapter 13 discharge, 2 years.
- 3. What are FHA loans, and how do they work for people with bad credit after bankruptcy? Government-supported FHA loans are designed to be more lenient towards people with lower credit scores or past bankruptcies. If you have a credit score of 580 or above, the minimum down payment you have to make is 3.5%. However, if your score is between 500 and 579, you must pay a down payment of 10%.
- 4. Can I get a VA loan with bad credit after bankruptcy? VA loans are accessible to both veterans and active-duty service members. The VA does not set an official minimum credit score requirement for these loans. However, lenders may impose their credit score criteria, usually around the 620-640 FICO range.
- 5. What are Non-QM loans, and how can they help after bankruptcy? Non-QM loans are not categorized as prime loans. They are designed for borrowers who may need to meet strict credit requirements. These loans may have more relaxed credit requirements and may not require a waiting period after bankruptcy. They can accommodate borrowers with recent credit issues, including late payments within the past 12 months.
- 6. How can I improve my chances of getting approved for a mortgage with bad credit after bankruptcy?
- Rebuild your credit by Obtaining secured credit cards, becoming an authorized user on another’s card, or getting a credit-builder loan.
- Accumulate savings for a bigger down payment: This can make you less risky to lenders.
- Reduce your debt-to-income ratio: Pay down existing debts to improve financial flexibility.
- Consider a co-signer: Having a co-signer with a good credit score can improve the terms of your loan.
- 7. What if I have late payments after bankruptcy? While late payments can affect your loan approval, they are only sometimes a deal-breaker. Each late payment will be evaluated individually, and lenders will consider the overall credit profile and the circumstances surrounding these late payments.
- 8. What should I do if I need to amend my tax returns for mortgage qualification? Amending tax returns to show higher income can be legitimate. Still, there is typically a six-month waiting period after amending before lenders consider the revised income for mortgage qualification.
- 9. Are there specific strategies for self-employed individuals seeking mortgages after bankruptcy? Self-employed individuals can benefit from non-QM loans, particularly bank statement loans. Borrowers can provide their bank deposits as evidence of their income instead of relying on conventional income verification methods with these loans.
- 10. Can I qualify for a mortgage if I had a bankruptcy due to extenuating circumstances? Lenders may consider borrowers with bad credit after bankruptcy due to extenuating circumstances on a case-by-case basis. Demonstrating that the bankruptcy was due to factors beyond your control, like medical emergencies or layoffs, can help your case.
To successfully navigate mortgage options after bankruptcy, it is important to understand the unique requirements and waiting periods associated with each type of loan. Rebuilding your financial health will also improve your eligibility for future loans.
