Mortgage Waiting Period After Foreclosure or Bankruptcy
What are mortgage waiting periods after bankruptcy or foreclosure?
- Mortgage waiting periods depend on the bankruptcy type, Chapter 7 is more serious than Chapter 13.
- 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.
Conforming Mortgage Waiting Periods
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.
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 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.
If you file multiple bankruptcies in a seven-year period, your waiting period is five years.
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.
FHA, VA, and USDA home loans are generally more flexible post-bankruptcy than conforming lenders are.
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.
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.
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.
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 Wait: 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.
- 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.