Home Loan After Bankruptcy

Home Loan After Bankruptcy Mortgage Guidelines

Gustan Cho Associates are mortgage brokers licensed in 48 states

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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