If the American dream is to own a home, conventional wisdom says about 800,000 dreams were shattered in 2016.
That’s how many bankruptcies were filed and a lot of people think that filing bankruptcy ruins any chance they’ll ever have to qualify a mortgage.
Think again. You could qualify for a mortgage as quickly as one year after your bankruptcy is discharged.
It depends on what type of bankruptcy you filed, what kind of loan you are pursuing, and how long a “waiting period” is involved, but if you get your financial house in order – specifically repair the damage to your credit score – you could walk into a new home not long after you walk out of bankruptcy court.
Why Is There a Waiting Period for Mortgages after Bankruptcy?
The first obstacle to owning a home after bankruptcy is dealing with the “waiting period” (also known as a “seasoning period”) required by lenders after bankruptcy.
Lenders want you to have time to restructure your finances and rebuild your credit score so they instituted waiting periods to allow you to demonstrate that you can handle mortgage payments.
For Chapter 7 bankruptcy, FHA and VA regulations require a two-year waiting period from the time of discharge (not the time of filing). Conventional loans require a four-year waiting period from the discharge date.
Getting a FHA or VA loan after Chapter 13 bankruptcy is a little more complicated. If you have consistently made verified payments for one year, you can apply for a FHA loan. You also must have a court trustee’s written approval and an explanation of your bankruptcy that demonstrates you had no other recourse. Otherwise, the waiting period is two years.
For a conventional loan after Chapter 13 bankruptcy, there is a 2-year waiting period after the bankruptcy was discharged. If your Chapter 13 case was dismissed, the waiting period is extended to four years.