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With the co-signer, you will need to wait for 2 or 4 years after bankruptcy to apply for the mortgage loan. If they agree to shorten the waiting period, you still have to show that you’ve had good credit since the foreclosure to apply for an FHA loan. As a result, it will typically take a year before you’re eligible for a new loan under the extenuating circumstances provision. Some examples might be that the primary breadwinner died or someone in your family faced a major medical emergency.
Or if you can prove that you faced extenuating circumstances and no longer have bad credit, then you only have to wait one year. Below are the waiting periods and restrictions for different home loan programs. After you go through the mandatory waiting period, you’ll need to follow the program’s other lending policies.
When Can I Buy a Home After Filing Chapter 7 Bankruptcy?
Things can get murkier when bankruptcy and foreclosure mix. It’s not uncommon for homeowners to go through bankruptcy and see their home foreclosed on months or even years later. Now you’re potentially talking about two different seasoning periods. According to USCourts.gov, about 68% of people filing bankruptcy follow Chapter 7, while about 32% file under Chapter 13. You will not be able to access the CAIVRS list yourself, but your lender can and will check before approving your loan. If you’re applying for an FHA, VA, or USDA loan and you’re on the CAIVRS list, then you will not be approved for the loan.
A bankruptcy or foreclosure definitely adds risk to your loan file. Whether you can still qualify from a credit standpoint is another story. Bankruptcy and foreclosure can take a serious toll on your credit scores. While government-backed loans provide more flexibility regarding foreclosure, there is a wrinkle worth noting.
Step 2: Rebuild Your Credit
When a home is surrendered, a foreclosure will ensue — but only as a means of clearing title so the bank can sell the home. Many consumers are confused by the interplay between the two. When you file bankruptcy and surrender a home, you give the property back to the lender.
Generally, it’s a matter of when you’re no longer legally responsible for the mortgage debt. If it’s truly discharged in the bankruptcy, lenders can essentially disregard the subsequent foreclosure or short sale. You’re not going to be “double hit” with another seasoning period. Note that post-bankruptcy mortgage waiting periods are much shorter than what typically occurs after a home foreclosure. For this reason, a bankruptcy may be preferable to foreclosure in many cases. If you are discharging mortgage debt in bankruptcy, the credit hit will generally show up as a bankruptcy rather than a foreclosure or a short sale.
Can I Get a Conventional Loan After a Chapter 7 Filing?
“Chapter 13 involves paying back an agreed-upon portion of your debt, which lenders look more kindly upon,” Graham explains. As always, the right loan type for you will depend on your financial situation and the home you’re buying. But for many borrowers with past credit issues, an FHA loan could be the right solution.
You will also need to demonstrate that you’ve handled your finances well after bankruptcy. Whether you choose not to fight a foreclosure or you file for bankruptcy is up to you. Everyone’s financial situation is different — that’s where an experienced bankruptcy attorney can help review your debt solutions. Our member attorneys have hundreds of years of combined experience.
How long does a foreclosure stay on your credit?
If your credit score is 580 or higher, you may only need a down payment of 3.5 percent. But if you pursue an FHA loan and your score is lower, the down payment required will usually need to be at least 10 percent. “Getting a loan will be very difficult for a few years immediately following a bankruptcy,” says Reggie Graham, branch manager for Silverton Mortgage. He notes that home buyers applying after Chapter 7 and Chapter 13 bankruptcy can often expect bigger down payment requirements and higher interest rates. You can buy a house after a foreclosure, but you will need to get your “financial house” in order.
VA or FHA loan, you must simply have your loan discharged by the court before you apply. Bankruptcy is challenging—but it’s not the end of the road. However, you will need to follow certain steps to maximize your chances of approval. Chapter 7 has a three year waiting period from the discharge date. 12 month satisfactory payments have been made for the Chapter 13 bankruptcy plan. 12 and 24 month bank statement option is allowed on home loans after a foreclosure and home loans after bankruptcy.
You will be free of the burden of unmanageable debt, but you will also face the challenge of a lower credit score. You may also have a shorter waiting period if the new loan will significantly reduce your housing expenses, which will help improve your ability to make your mortgage payments. The USDA considers a qualifying reduction to be 50 percent or more. Keep in mind that a bankruptcy filing stays on your credit reports for 7-10 years.
However, it is possible if you can show that the bankruptcy was caused by situations beyond your control. Those justifying situations might include a serious illness or a natural disaster that can cause you to lose everything. This means the government guarantees that if the borrower stops making payments, it will repay the loan. This guarantee means lenders want to provide mortgages to borrowers who might not able to take the loan.
And pay down account balances to increase your chance of home loan approval. But this strategy comes with a lot of risk, because the co-signer is agreeing to take over your new debts if you cant pay them. There are several requirements for those who have gone through a bankruptcy if they want to get a VA loan. Interested in learning more about bankruptcy and realistic financial planning as a way to leave debt in the past? Drop us a line or give us a call today to get the conversation started.
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