When buying a house after bankruptcy, there are several mortgage options including portfolio loans, conventional, FHA, and VA loans. They key is to know which mortgage option would apply to you best.
In today’s blog post I will cover everything you need to know about buying a house after bankruptcy including time frame you’ll need to wait for each type of loan available.
The short answer is: yes, it is absolutely possible get approved when buying a house after bankruptcy.
The long answer is: it depends on your income, credit, down payment (assets), and waiting period circ*mstances.
- Income – You need to have an established/stable income and/or employment situation. If your income is unstable or inconsistent, it is going to create more of a challenge when looking to get approved for a mortgage.
- Credit – It’s important to show that you have made an effort to re-establish your credit since having a major recent credit event like a bankruptcy. On time payment history, and no new collections would be the goal. Credit score requirements vary, and will be laid out below.
- Assets – If you’re looking to buy a home immediately after bankruptcy discharge, you’ll likely need at least 15-20% down payment, plus 6 months of reserves. If you can wait, the down payment requirements are less aggressive. If you are at least 2 years out from bankruptcy, and have at least 580 credit, 3.5% down payment may be possible on FHA (10% down if below 580).
- Waiting period – see below for waiting period on different bankruptcy types and loan types.
The waiting period depends on what type of bankruptcy you went through, and what type of loan you’re applying for.
Chapter 7 Bankruptcy
- Portfolio Loan – 1 day after bankruptcy was discharged. With portfolio loans your bankruptcy just has to be discharged. There is no lengthy waiting period you have to go through until you can buy a home. Expect higher rates and costs with portfolio loan. Portfolio loans are a short term solution for short term circ*mstances. Once you meet normal lending guidelines, you’d refinance out of the portfolio loan into convention or FHA
- FHA and VA Loan – 2 year waiting period. When applying for an FHA loan, you’ll need to wait until the bankruptcy has been discharged before expecting to be approved. The discharge date will show on your credit report, and you can also provide your proof of bankruptcy discharge to your lender so they can further verify the discharge date.
- Conventional Loan – 4 year waiting period. The lender will need to see 4 years have passed since the bankruptcy discharge date before the approval will be considered.
Chapter 13 Bankruptcy
- Portfolio Loan – 2 years from original filing date. Must be discharged prior to application. The lender will likely want to see on time payment history on the chapter 13 bankruptcy.
- FHA and VA Loan – 1 year from original filing date. Need to be able to show on time bankruptcy payments. If still in bankruptcy the court’s trustee will need to approve your request to obtain mortgage financing as well.
- Conventional Loan – 2 years from discharge date or 4 years from dismissal date.
What if I had a home/mortgage included in bankruptcy?
Portfolio Loan – If mortgage was included in bankruptcy, you may be okay to purchase a new home once the bankruptcy is discharged.
Conventional Loan – If mortgage was included in bankruptcy and the home was surrendered (you left the home) a conventional loan is an option once the bankruptcy has been discharged for 4 years. This applies even if it took several years for the bank to foreclose on the property. Waiting period is still based on the bankruptcy discharge date, not the foreclosure date. This is a fannie mae guideline found here. Also, the snippet from the guideline is listed below.
Foreclosure and Bankruptcy on the Same Mortgage
If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if the lender obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied.
FHA Loan – The waiting period will be based on the foreclosure date (which is 3 years) unfortunately.
Mortgage Included in Bankruptcy | When/How to Buy a house after your home was surrendered
Getting a Mortgage Post-Bankruptcy
It is extremely important that you prepare yourself to present your situation to your lender with complete clarity when getting a mortgage post-bankruptcy.
The story matters, especially if your bankruptcy has been discharged for less than 2 years. The lender is going to want to understand what circ*mstances led to the bankruptcy, and what has taken place to prevent that from happening again.
As you can see, as stated above, if you do not meet “traditional” lending guidelines, a portfolio loan may be the best solution when buying a house after bankruptcy and it was just recently discharged. A portfolio loan is analternative type of mortgage that allows borrowers to get approved for a home loan based on more of a common sense approach. [more on portfolio loans here]
- Low credit scores okay
- Primary residence, vacation home, and investment property okay
- Single family home, 2-4 unit, and condominium property type okay
The most important part about buying a house after bankruptcy
Working with a lender who is highly experienced with this type of scenario is perhaps the most important thing to keep in mind when buying a house after bankruptcy.
It is very common for a loan officer to see a bankruptcy on a credit report, and automatically state the borrower doesn’t qualify for “X” number of years without really digging deep into the situation.
Be sure to work with a lender who has a portfolio loan option in case the traditional mortgage route is out of the question.
If you are not sure if you qualify, please feel free to reach out.
I’ve been able to help many homeowners who have been told by other lenders that they don’t qualify.
I invite you to reach out.
Get your questions answered.
If I cannot help, I should be able to point you in the right direction at the very least.
