This BLOG On Mortgage After Filing Bankruptcy With No Waiting Period Was Updated On November 26th, 2018
The federal government created federal bankruptcy laws for consumers who are drowning in debt:
- Bankruptcy gives consumers a chance to re-structure their debts or discharged their debts and start new
- Everyone has good intent on paying their bills on time and make good on their debts
- However, there are extenuating circumstances where people can lose their jobs, lose their business, go through a divorce, medical issues, or other issues where it affects their finances
- These extenuating circumstances affect their ability to pay their bets
Bankruptcy is a solution where consumers can get a fresh financial start.
In this article, we will discuss and cover qualifying for a Mortgage After Filing Bankruptcy With No Waiting Period.
Reasons Consumers File Bankruptcy
Once a person is behind on their monthly debts, they had to deal with bill collectors as well as relentless threatening letters from collection agencies.
- Dealing with one or two collection agency is fine but dealing with dozens of them can be extremely stressful
- Bankruptcy is an option for those who had an economic issue during their lives
- Countless of hard-working Americans filed bankruptcy after the 2008 Real Estate and Credit Meltdown
- Most homebuyers who filed bankruptcy have re-established themselves
- Many are ready to become homeowners
Just until recently, there was a mandatory waiting period in getting a mortgage after filing bankruptcy.
NON-QM Loans Does Not Have Waiting Period Requirements After Bankruptcy And Housing Events
Good news is that with the introduction of NON-QM Loans:
- There is no waiting period in getting a mortgage after filing bankruptcy and foreclosure with NON-QM Loans and Alternative Lending Mortgage Programs
Standard Waiting Period In Getting Mortgage After Filing Bankruptcy
There are waiting period requirements to qualify for a mortgage after filing bankruptcy on government and conventional loans.
We will briefly outline the waiting period in getting a mortgage after filing bankruptcy for FHA, VA, USDA, and Conventional Loans.
FHA and VA have a two-year waiting period after Chapter 7 Bankruptcy discharged date to qualify for a mortgage:
- 3 year waiting period after Chapter 7 Bankruptcy to qualify for USDA Loans
FHA and VA have no waiting period after Chapter 13 Bankruptcy discharged date:
- FHA and VA allows someone under a Chapter 13 Bankruptcy Repayment Plan to qualify for a home loan one year into Chapter 13 with Trustee Approval
- Fannie Mae and Freddie Mac require a four-year waiting period after Chapter 7 Bankruptcy discharged date on conventional loans
Fannie Mae and Freddie Mac require a two year waiting period after Chapter 13 Bankruptcy discharged date on conventional loans:
- Four year waiting period after Chapter 13 dismissal date
Preparing To Qualify For Mortgage After Filing Bankruptcy By Re-Establishing Credit
After a consumer files bankruptcy, their credit scores will drop significantly.
- It can drop 100 points or more.
- However, the drop in credit scores is temporary
- It will improve as the bankruptcy on the credit report ages
- There are many cases where a person files bankruptcy and the person’s credit score is over 700 one year after the bankruptcy
- This holds true when the person re-establishes their credit by getting a few secured credit cards
Consumers who filed bankruptcy should immediately start re-establishing their credit after the bankruptcy discharged date.
Re-Establishing Credit After Bankruptcy
Many folks who went through a bankruptcy do not want anything to do with credit, Not getting new credit after bankruptcy will hurt them as a consumer and qualify for a mortgage. Lenders want to see established credit tradelines when they are qualifying a borrower for a home loan.
- NO CREDIT, NO LATE PAYMENTS is equivalent to BAD CREDIT under the eyes of lenders
- Re-Established Credit with traditional credit tradelines
Here are a few pointers for home buyers getting ready for mortgage after filing bankruptcy:
- After filing bankruptcy, monitor credit report like monitoring bank account
- Make sure that all information is correct and are no errors or misreporting by creditors
- Check credit report every 3 months
- Consumers are entitled by law for a free copy of credit report every year from the three credit reporting giants;
- Transunion
- Experian
- Equifax
- Try to request the three credit reports at different times from each individual credit bureau for 3 different times a year
- Free annual credit reports will have no credit score on them
- For a fee, credit scores can be requested
Re-Establishing Credit After Bankruptcy With Secured Credit Cards
Start to reestablish new credit after bankruptcy discharge with secured credit cards.
- Utility bills, insurance bills, cell phone bills, and many other vendors do not report positive payment history to credit reporting agencies but will report negative and/or delinquent balances due
Be timely with all monthly minimum payment due to whether the vendor reports it or not to the credit bureaus.
- Secured credit cards are the best tools for reestablishing credit after bankruptcy and/or foreclosure
- For maximum effect in improving and re-establishing a strong credit profile, 3 to 5 secured credit cards with at least a $500 credit limit is recommended
- Just getting one secured credit card will definitely improve credit scores
- If a person cannot afford all three at once, getting started with one secured credit card is a good approach to the road of great credit
Getting two or more secured credit cards will not just improve credit scores but will create a stronger credit profile.
Secured Credit Cards Are Easiest And Fastest Way Of Re-Establishing Credit
The key target number is 3 secured credit cards:
- Do not be surprised if credit score jumps more than 100 points after 3 to 5 months after you get 3 secured credit cards
- Again, religiously pay monthly credit card bills on time
- Remember that one late payment can drop credit scores by 50 points or more
- Do not max out credit cards
- Always keep them at the 20% level or less
- After a year of having secured credit cards, consumers will be able to qualify for unsecured credit cards or get an unsecured credit limit on their secured credit cards
Always keep a small balance on credit cards and not leave them at zero balance.
Importance Of Credit
Whatever purchase decision is being made, see if financing is available even though it can be paid with cash.
- For example, most buyers of autos purchase it with cash
- However, in order to develop credit, a car buyer should explore the option if the dealer can finance 50% of the car and put a 50% down payment
- If this is the route the consumer takes, check with the finance manager
Make sure the payment history of the car payment will be reported to all three credit reporting agencies.
Mortgage Guidelines On Credit Disputes
There are strict rules with regard to credit disputes during mortgage process .
Here are the FHA mortgage guidelines on credit disputes during the mortgage process:
- Borrowers cannot have any credit disputes on non-medical collections with outstanding balances
- Non-Medical collections up to an aggregate outstanding unpaid balance of $1,000 is exempt from credit disputes
- Zero balance credit disputes are exempt
- No credit disputes on charge off accounts
- Medical disputes are exempt no matter how large the unpaid outstanding balance of the medical collection
- All credit disputes need to be retracted prior to the mortgage process
- Retraction of credit disputes will drop credit scores
The above is the FHA Guidelines on Credit Disputes but most mortgage loan programs follow these guidelines.
Credit Disputes Halts Mortgage Process
Here is the reason why credit disputes are not allowed:
- When consumers dispute derogatory tradelines from their credit report, the credit bureaus will automatically take out the negative impact of the derogatory from the credit scoring model
- When consumers dispute derogatory credit tradelines such as unpaid collection accounts, the credit bureau will take out that collection account from the credit scoring formula
- Therefore, the negative impact that collection account has will be treated like it does not exist and the consumer’s credit scores will increase
The credit bureaus will post the verbiage that “consumer disputes the credit account and that the matter is under investigation”
Mortgage After Filing Bankruptcy With Late Payments After Bankruptcy And Foreclosure
Lenders do not want to see any late payments after bankruptcy and foreclosure.
Late payments after bankruptcy and foreclosure can be an automatic denial even though the borrower may have excellent credit scores.
- Potential homebuyers planning on getting a home mortgage after filing bankruptcy, they need to realize that most lenders will disqualify any borrowers with late payments after bankruptcy and foreclosure
- Late payment after bankruptcy is generally frowned upon from a lender
- The late payment might make the waiting period to qualify for a mortgage much longer
- 35% of credit score is derived by payment history
- So by paying bills timely on a monthly basis would definitely be a great way of increasing credit scores and keeping a strong credit profile and payment history
- Remember that one late payment can instantly drop credit scores by more than 50 points
- One of two late payments after bankruptcy is not a deal killer by certain lenders like myself
I have helped many folks get a mortgage with late payments after bankruptcy and foreclosure but would need an approve/eligible per AUS.
Qualifying For NON-QM Mortgage After Filing Bankruptcy With No Waiting Period
NON-QM Loans are alternative lending programs that many homebuyers can benefit from it. Homebuyers can qualify for non-QM loans after filing bankruptcy or one day out of foreclosure with no waiting period.
Here are the NON-QM Mortgage Guidelines:
- There is no waiting period after a housing event such as foreclosure, short sale, deed in lieu of foreclosure, and no waiting period after bankruptcy to qualify for home loans
- Loan Limits up to $3 million
- Jumbo Loans down to 500 FICO
- Borrowers can have credit scores down to 500 FICO
- Up to 80% to 90% Loan To Value
- Debt To Income Ratio up to 50% DTI
- Bank Statement Mortgage Loan Program where no tax returns or income verification is required
- Primary owner-occupied properties as well as 2nd homes, and investment properties ARE eligible for alternative financing
- No doc fix and flip rehab loans for rehabbers
- No doc investment property loans for real estate investors
- Rental and Investment properties can close under the name of LLC
- Non-warrantable condominium financing
- Adjustable Rate Mortgages, ARM, or 15, 20, and 30-year fixed mortgage loan terms
- No pre-payment penalty for owner-occupant homes and 2nd homes
- No credit tradeline requirements
- Single Family Homes, Townhomes, Non-Warrantable Condominiums and, 2-4 units on residential and investment properties
- Seller concessions allowed on owner occupant and second home financing up to 6%.
- Investment properties are limited to 2% sellers concessions.
Borrowers of NON-QM and Alternative Lending Mortgages, please contact us at Gustan Cho Associates at 800-900-8569 or text for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.
