Re-Establishing Credit During Waiting Period After Bankruptcy

This BLOG On Re-Establishing Credit During Waiting Period After Bankruptcy Was UPDATED On January 19th, 2018

Life is not over after bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale.

  • People go through financial crisis such as job loss, business loss, divorce, medical issues, and other extenuating circumstances where their household income is lost or has been greatly reduced
  • On the positive note, everyone recovers and life goes on
  • For those folks who have gone through a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale, they can qualify to purchase a home
  • However, there are mandatory waiting periods they need to abide by to qualify for mortgage after bankruptcy and foreclosure

Here are the mandatory waiting period requirements.

  • Bankruptcy:
    • There is a mandatory 2 year waiting period from the discharge date of the bankruptcy to qualify for VA and FHA insured mortgage loan
    • Home Buyers can qualify for VA and FHA Loans one year into a Chapter 13 Bankruptcy repayment plan with Trustee Approval
    • There is no waiting period to qualify for VA and FHA Loans after Chapter 13 Bankruptcy discharged date
    • There is a four year waiting period to qualify for Conventional Loans after Chapter 7 Bankruptcy discharge date
    • There is four year waiting period to qualify for Conforming Loans after a Chapter 13 Bankruptcy dismissal date
    • There is a two year waiting period to qualify for Conventional Loans after Chapter 13 Bankruptcy discharged date
  • Foreclosure and Deed in Lieu of Foreclosure: 
    • There is a mandatory 3 year waiting period from the recorded date of the foreclosure or the date of the sheriff’s sale to qualify for FHA Loans and USDA Loans
    • The waiting period time time clocks starts the date the name of the homeowner has been transferred out of their name to the mortgage lenders name
    • There is a two year waiting period to qualify for VA Loans after foreclosure and/or deed in lieu of foreclosure
    • There is a four year waiting period to qualify for Conventional Loans after deed in lieu of foreclosure
    • The waiting period is seven years to qualify for Conventional Loans after a foreclosure
  • Short Sale: 
    • There is a mandatory 3 year waiting period from the date of short sale to qualify for FHA Loans and USDA Loans
    • Borrowers need to provide the HUD Settlement Statement and normally that date is the waiting period time clock starts
    • The is a two year waiting period to qualify for VA Loans after short sale date
    • There is a four year waiting period to qualify for Conventional Loans after short sale

Once bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale is finalized, it is reported to the three credit bureaus:

Effects Of Bankruptcy And Housing Event On Credit Reports

Credit scores will most likely plummet by at least 150 point or more.

  • However, credit scores will gradually improve slowly over time as bankruptcy and/or housing event ages
  • Just because one has passed the mandatory waiting period does not automatically qualify them for a mortgage loan
  • Mortgage lenders want to see that borrowers have re-established credit
  • By re-establishing credit during waiting period will expedite increasing credit scores
  • Many mortgage lenders want to see three established credit tradelines that has been seasoned for at least 12 months
  • While others require 24 months of re-established credit
  • Borrowers cannot have a late payment after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale
  • There are many ways of re-establishing credit during waiting period after bankruptcy and foreclosure

 Re-Establishing Credit During Waiting Period With Secured Credit Cards

Getting secured cards is the best way of re-establishing credit during waiting period.

  • Get three secured credit cards with at least a $500 credit limit
  • Three secured credit cards will have the maximum effect in increasing credit scores
  • Make sure  never to be late with the minimum payment
  • Each secured credit card should boost credit scores by at least 20 points
  • Do not have no more than a 10% credit balance in each of those secured credit cards
  • Do not apply for unsecured credit because the chances are that applicant will not get approved
  • Hard inquiries will hurt credit scores
  • Each hard inquiry will drop credit scores by at least 5 points
  • Multiple hard inquiries do not look on credit report and mortgage underwriters will frown on multiple credit inquiries

Rental Verification And Overdrafts: Re-Establishing Credit During Waiting Period

Rental verification shows great weight for mortgage lenders.

  • Always make your rent payment with a bank check
  • Rental verification, although not reported to the credit bureaus, carries more weight than any new credit items that is reported on credit report
  • The only way that you can prove rental verification is to provide 12 months worth of cancelled checks to the mortgage loan underwriter
  • Never bounce a check
  • A $5 dollar overdraft can be a deal killer
  • Get overdraft protection
  • Mortgage lenders do not want to see any overdrafts in the prior 12 months
  • One of two overdrafts will most likely not be a deal killer but will be limited on which mortgage lender will accept mortgage application

Credit Scores During Re-Establishing Credit During Waiting Period

Future Home Buyers who follow my advice on re-establishing credit during waiting period will see their credit scores will go up over 100 points or more during the course of 12 months.

  • There are many cases where I have seen mortgage loan borrower’s credit scores over 700 after a year of filing bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale
  • As time passes, the less impact prior bad credit will have on credit scores
  • One late payment will drop credit scores by more than 80 points so make sure to religiously pay minimum payment on time

To get qualified for a mortgage after bankruptcy and/or foreclosure, please contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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