How Long Do I Need to Wait Before I Can Get a Mortgage After Filing for Bankruptcy?

Many Americans have filed for bankruptcy in the last two years. The economic turmoil brought on by the coronavirus pandemic has resulted in many Americans losing their jobs or having their hours reduced. Now the prohibitions on evicting people from their homes are expiring, and many people will be wondering what they should do if they cannot pay their mortgages. 

Filing for bankruptcy can be one of the best ways to have your debts discharged so you can move forward financially. Many people are concerned about how filing for bankruptcy will affect them in the long run. They may be worried it will take a long time to rebuild their credit. Others may be concerned that they will never be able to obtain a mortgage to purchase a house. We will discuss how long most people need to wait before getting a mortgage after they file for bankruptcy.

You Need to Reestablish Your Credit

If you want to pursue obtaining a mortgage after filing for bankruptcy, you will need to understand the importance of re-establishing credit. When you file for bankruptcy, the bankruptcy is listed on your credit score, reducing your credit score. When you build up your credit, you will increase your chances of getting approved for a mortgage faster after filing for bankruptcy. You may want to pay off a secured credit card in full every month, but be careful that you do not begin incurring more debt again. 

A secured credit card functions as a debit card but allows you to have your activity reported to the three major credit reporting agencies every month. Building up your credit score with a secured credit card will show that you are focused on being financially responsible. Other options include getting an unsecured credit card, a personal loan, or a car loan to show that you are a responsible borrower with diverse credit streams. It is important that you refrain from multiple credit lines if your budget does not allow you to make payments in full.

Qualifying for a Home Loan After Filing for Bankruptcy

The waiting period for obtaining a mortgage loan depends on which type of loan you are pursuing. The type of bankruptcy you filed will also be a factor and how long it takes you before you can get a loan. While you wait to become eligible for another mortgage, there are several steps you can take. You can make sure that your credit score is accurate and that there are not any errors on your credit score that could decrease your score. You should also make timely bill payments and save as much money as possible. Lenders will want you to put down a down payment and make sure they see a history of savings.

Conventional Loans

Conventional loans are home loans that are not insured or made by a government entity. These types of loans are the most challenging to get after you have filed for bankruptcy. For example, if you have already been discharged of your debt from a chapter 7 bankruptcy, your waiting period is four years. After a chapter 13 bankruptcy discharge, you will be required to wait two years before you can obtain a conventional loan. Remember that individual mortgage lenders sometimes have their own waiting periods, so you should ask them about their specific policies.

FHA Loans

FHA mortgages are insured by the Federal Housing Administration. If you are interested in pursuing a mortgage after filing for bankruptcy, this type of loan is one of the better options. Your bankruptcy will need to be discharged for at least two years before you apply for an FHA loan if you filed for chapter 7 bankruptcy. If you filed for chapter 13 bankruptcy, you will need to wait a year after your debt has been discharged to file for bankruptcy. 

VA Loans

VA loans are only available to Veterans who have served at least 181 days during peacetime, six years of service in the National Guard, or 90 days of service time during war. These types of loans are sponsored by the Federal Department of Veteran Affairs. In order to qualify for a VA loan after bankruptcy, your bankruptcy case must have been dismissed for at least two years before you apply for the loan. However, if you filed for chapter 13 bankruptcy, you do not need to wait. You can apply for a VA loan as soon as your bankruptcy has been discharged.

USDA Loans

USDA loans are typically only available in rural areas. If you live in a rural area and meet all of the requirements, you should consider applying for a USDA loan. You can obtain a USDA loan after three years of receiving a discharge for a chapter 7 bankruptcy. After a chapter 13 bankruptcy discharge, you will need to wait a year. The bankruptcy court has the authority to approve a USDA loan during the chapter 13 process. In other words, you do not need to wait until your debt has been discharged in a chapter 13 Bankruptcy to apply for a mortgage.

Obtaining a Mortgage After a Home Foreclosure

What if you did not file for bankruptcy, but your home was foreclosed? Alternatively, what if you have gone through a home foreclosure and bankruptcy? Many people are forced to file for bankruptcy because of a pending foreclosure on their homes. You may assume that you will not be able to get another home loan after going through a foreclosure. However, many people can still qualify for another mortgage and the future. For most people, recovering from foreclosure and getting approved for another mortgage takes seven years. 

However, the process may not take seven years. Each mortgage lender has their own time frames for when they will reconsider a person who has had their home foreclosed. If the foreclosure happens before filing for bankruptcy, the waiting period starts the day of the discharge of debt. If a foreclosure took place after your bankruptcy, your discharge date would be used rather than your foreclosure date.