Filing for bankruptcy is sometimes the only viable option to get out from under the burdens of costly debt. While the process eliminates some of the pressure placed on monthly cash flow from too many debt obligations, bankruptcy has a significant impact on one’s overall financial life. It leaves a black mark on your credit history and score for an extended period of time (typically, seven to 10 years), and it makes the options for obtaining new credit a true challenge.
Fortunately, not all is lost after bankruptcy is filed. There are ways to secure new debt in a cost-effective way post-bankruptcy, even a new home mortgage loan. Here’s what you need to know.
Eventually, You Can Apply for a Mortgage Loan Again
After filing for bankruptcy, you’ll have to wait a little bit of time before you can apply and subsequently be approved for a new home mortgage loan. Each type of mortgage carries with it specific rules for how long you must wait in between having your bankruptcy discharged and when you can secure a new mortgage.
How Long After Bankruptcy Can You Get a Conventional, FHA, VA Loan?
Conventional Mortgages: you will be eligible for a conventional mortgage after 24 months have passed from the time your bankruptcy was discharged is dismissed if the filing was due to circumstances beyond your control, or 48 months if it was caused by financial mismanagement. This is true for both Chapter 7 and Chapter 13 bankruptcies.
VA Mortgages: you may be eligible for a VA mortgage once two years have passed since the bankruptcy discharge, so long as you can show a clean history of financial management during that time.
FHA Mortgages: the two-year waiting period also applies to FHA loans, but there is a 12-month exception if a Chapter 7 bankruptcy was due to circumstances beyond your control. If you’ve filed a Chapter 13 bankruptcy, you may qualify for an FHA mortgage 12 months after you’ve started making payments per your bankruptcy agreement.
Regardless of the type of bankruptcy you have filed or the type of mortgage you plan to use for the purchase of a new home, you’ll need a hefty dose of patience before you can feasibly qualify.
Plan Ahead Before You Try to Buy a Home
You shouldn’t sit idly by during your waiting period but should take steps to create a new financial footprint that shows lenders you mean business. It is necessary to begin rebuilding your credit post-bankruptcy, which can come in several forms. The easiest step in the process is staying current with any bills or debts due and make payments in full and on time.
Additionally, you may qualify for a low-credit-limit credit card shortly after your bankruptcy has been discharged. Use that financial tool to make small purchases, and pay the balance off over time. This will show potential lenders you understand how to be financially responsible with debt.
You can also ease the process of obtaining a new mortgage loan after bankruptcy by starting to set aside funds for a down payment. Although some mortgage programs, including VA and FHA loans, require relatively small down payment amounts, lenders will be more apt to approve your loan if you can show you’ve been preparing for the home purchase in advance.
Be Prepared to Answer Numerous Lender Questions
Going through the mortgage application process is not a cakewalk for any borrower, whether bankruptcy was an issue in the past or not. However, lenders are going to take an extra close look at your financial history when bankruptcy is part of the mix.
To help in the process of getting a new home mortgage loan, be prepared to discuss the details of your bankruptcy in length with your lender. They may ask questions surrounding why the bankruptcy took place, and why they should trust you with a significant debt moving forward. Having these answers ready before you apply for a new mortgage will help tremendously throughout the process.
Shop Home Mortgage Lenders
As with any other major purchase, you will want to shop around for the right-fit lender for your situation. Not all mortgage lenders are created equal; some may have great customer service but high lender fees, while others may offer special programs or interest rate discounts for individuals with less than ideal credit histories. Take the time to look into a handful of different lender options before selecting which one you will work with for your post-bankruptcy mortgage.
Final Thoughts on Getting a Home Mortgage Loan After Bankruptcy
Getting a mortgage is not completely off the table once you’ve filed for bankruptcy, but there are some restrictions of which you must be aware. Know that a waiting period will most likely apply, and you’ll need to know that time frame for each type of mortgage you are interested in using. Additionally, you need to work on your credit profile well in advance of applying for a new mortgage, and set aside some money for down payment and other home buying expenses.
Finally, understand that lenders may ask specific questions related to your bankruptcy, and be prepared to do some shopping in order to find the best mortgage program and lender for your specific needs.
