Can You Get a Mortgage After Declaring Bankruptcy?

If you’ve mentioned you’re considering filing for bankruptcy, you’ve probably gotten a lot of misinformation from well-meaning people. Especially around homeownership following either a dismissal or completed bankruptcy proceeding.

If you haven’t already purchased a home will you ever be able to get a mortgage after filing for bankruptcy? It’s absolutely possible to purchase a home after bankruptcy. It will require patience on your part, but you don’t have to wait for your bankruptcy to fall off your credit report before you can qualify for a mortgage.
You might be surprised how quickly you can get a home loan — and depending on why you filed for bankruptcy — it could be sooner than you think.

In this article, we’re going to discuss the process of qualifying for a mortgage after filing Chapter 7.

In a Chapter 7 proceeding, the typical filer emerges from bankruptcy with a clean slate but usually with a credit score that could use some improvement and a credit history that will take time to rehabilitate.

Dismissal vs. Discharge: An Important Distinction

Your ability to qualify for a mortgage after emerging from bankruptcy works on a timeline. In rare cases, the court may dismiss your petition. This happens if you don’t meet the means test or if you’ve made an error in your petition. To avoid issues that can create more problems, it’s a good idea to speak to a certified bankruptcy specialist who will review your entire financial situation and help you decide whether a Chapter 7 filing is right for you.

The date of discharge is when your debts are wiped out and you’re given a fresh start by the bankruptcy court.

From this point forward, if homeownership is your dream, it’s time to start getting your financial future in order by shoring up your credit score.

How Soon After My Bankruptcy Can I Apply for a Mortgage?

There is a waiting period after your Chapter 7 bankruptcy is dismissed before you can apply for a mortgage. For some people, with proper management of their finances, a mortgage can be obtained in one year. For other post-petition applications, it can be much longer.

The general rule is to wait two years after your Chapter 7 bankruptcy is discharged before you can reasonably expect to qualify for a home loan.

To qualify for a bankruptcy in under two years, you’ll need to be able to show that your bankruptcy was necessitated by extenuating circumstances and unlikely to reoccur. You will also need to demonstrate that you can manage your finances since your bankruptcy occurred.

But different loan programs have different requirements. Once you’ve passed the waiting period, it’s time to speak with a lender about your post-bankruptcy home loan options.

Best Mortgage Options After Bankruptcy

For some borrowers, how quickly they can qualify for a home loan will be a key factor in their decision to use one loan product over another. Most lenders will want to see that you have established good credit habits and are managing any post-petition debts well. Each loan has its own credit score and down payment requirements.

• FHA Loans: These government backed loans typically require low down payments and have more flexible lending rules for your credit score than other types of loans. FHA loans offer 30-year terms with fixed rates. Waiting period, 2 years with some exceptions.
• USDA Loans: These government loans are designed to help borrowers buying homes in qualifying rural areas. There are income limits on borrowers and some of the loan terms are more rigid in this program. Waiting period 1-2 years.
• VA Loans: For service members, veterans, and their families, the VA Loan program can be the quickest path to homeownership after a bankruptcy. The VA Loan program has more lenient credit history standards and these loans also have a 1-2 year waiting period and easier credit score and down payment requirements as well.
• Conventional Mortgage: After a 2-4 year waiting period, and with an improved credit score, you may be eligible for a conforming conventional loan. A conforming loan means that you must meet standards established by Fannie Mae or Freddie Mac to qualify for a loan using this program. Down payment and credit score requirements are going to be higher with a conventional loan.
• Non-Conventional Mortgage: These loans fall outside the federal lending guidelines and may allow borrowers to have higher debt-to-income ratios. These loans may also have features that are expensive and risky to borrowers like balloon payments and longer than average loan terms. You may be able to qualify for a loan like this immediately following your bankruptcy, but these non-conforming loans expose you to higher financial risk.

How Can I Qualify for a Mortgage After Bankruptcy?

The key to qualifying for a mortgage after bankruptcy is to have a plan. A trusted mortgage lender can help you take advantage of loan programs that have favorable terms for people who have declared bankruptcy. It’s also a good idea to work with a local bankruptcy attorney who will help you before, during, and after your bankruptcy. Someone who will be on your side to make sure that you get the brightest financial future possible for you and your family.

If you’ve got questions about bankruptcy and your financial future, let’s talk. We offer free consultations.

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On Behalf of Janus Law

At Janus Law, we’re passionate about helping clients transition into new phases of life. Through bankruptcy, we are able to eliminate or reorganize your debt, while preserving your assets , all while offering compassionate and knowledge legal support. Take the first step into your financial future — our legal partners will guide your path.

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