Home Loan After Bankruptcy Mortgage Guidelines

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This BLOG On Home Loan After Bankruptcy Mortgage Guidelines Was UPDATED And PUBLISHED On February 5th, 2020

What are the guidelines for a home loan after bankruptcy?

There are hundreds of people who file bankruptcy every day in the United States to bury the past and start a new life.

  • Many folks consider bankruptcy as a last resort
  • This is because they feel they are so buried in debt due to extended unemployment, medical reasons, failed businesses, or civil judgments
  • Many of these bankruptcy filers believe that by filing bankruptcy, it will be many years before they can obtain a home loan
  • Borrowers can qualify for a mortgage after bankruptcy on purchase and/or refinance a home loan
  • In reality, they could become eligible for a home loan after bankruptcy with no waiting period with alternative financing such as non-qm loans offered by Gustan Cho Associates

The traditional mortgage loan programs such as FHA, VA, USDA, and Conventional Loans do have mandatory waiting periods to qualify for a home loan after bankruptcy.

Waiting Period Requirements To Qualify For Home Loan After Bankruptcy

The following are the waiting period requirements to qualify for a home loan after bankruptcy:

  • HUD requires a 2 year waiting period after a Chapter 7 Bankruptcy discharged date
  • Homebuyers can qualify for an FHA and/or VA Loans one year in a Chapter 13 Bankruptcy repayment plan
  • Homebuyers can qualify for a VA Loan two years after a Chapter 7 Bankruptcy
  • Buyers can qualify for a USDA Loan 3 years after Chapter 7 discharged date
  • Can qualify for a Conventional Loan four years after a Chapter 7 discharged date

Homebuyers can qualify for a Conventional Loan two years after a Chapter 13 Bankruptcy discharged date:

  • The waiting period is four years after Chapter 13 dismissal date

There is no waiting period after bankruptcy, foreclosure, short sale, deed in lieu of foreclosure with non-QM loans also called alternative financing.

FHA Loans Are Most Popular Home Loans

Federal Housing Administration, also known as FHA, is one of the most popular loan programs in the U.S.

  • Borrowers who are one year into a Chapter 13 can qualify for an FHA Loan
  • Need approval of the Bankruptcy Trustee
  • There is no waiting period after a Chapter 13 Bankruptcy discharged date
  • Conventional mortgage guidelines from Fannie Mae and Freddie Mac are stricter
  • Waiting periods for conventional mortgages are normally a minimum of 4 years

Power Of Secured Credit Cards To Qualify For Home Loan After Bankruptcy

What is the power of secured credit cards to qualify for a home loan after bankruptcy?

The most important point, according to home loan mortgage industry experts, is that consumers must re-establish their credit to show that they can manage it responsibly.

  • They can do this by paying rent and utility bills on time, or perhaps by obtaining a secured credit card
  • Many who got a bankruptcy discharge do not want to deal with credit anymore
  • This is because credit is what got them in trouble
  • This is not good for one’s credit profile
  • The best way to strengthen credit and re-establish credit is by getting three secured credit cards

Letter Of Explanations To Mortgage Underwriters

If a bankruptcy filing was the result of a one-time occurrence, like the death of a spouse, divorce or illness, the waiting period to apply for a home loan may be reduced.

  • Lenders will often want borrowers to write a hardship letter explaining their situation, backed by documentation like hospital bills or a court-approved divorce settlement

Chapter 7 Versus Chapter 13 Bankruptcy

Statistics show that 70 percent of personal bankruptcies are filed under Chapter 7, according to the American Bankruptcy Institute, a research organization.

  • The data collected by this institute also noted that last year there were 1.362 million personal bankruptcy filings nationwide
  • This is a reduction from 1.53 million in 2015
  • At the end of the first quarter of this year, there were 311,975 filings
  • This is 5 percent less than the first quarter of 2016

Rebuilding Credit After Bankruptcy And Foreclosure

How to rebuild credit after bankruptcy and exclusion

Rebuilding credit after a personal bankruptcy will take some work.

  • Methods of rebuilding credit include getting three secured credit cards and not be late with any monthly payments
  • Also, make sure you pay utilities on time
  • Many electric and gas companies now report consumer payment history to the credit bureaus
  • Get a copy of personal credit report
  • Start disputing negative items that do not belong to you

A personal bankruptcy filing will have a larger impact on a credit score than any other credit issue.

  • Filing for bankruptcy protection will reduce a credit score by 200 points or more
  • Foreclosures will impact a person scores by 100 to 150 points

Consumer credit will get better with time.

  • It is like recovering from a major hard liquor hangover
  • It heals with time

If you start rebuilding credit by reestablishing credit with secured credit cards and disputing negative credit items on credit reports, consumers should be able to qualify for a home loan 2 years from the date of the bankruptcy discharge.

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