Reaffirming a loan means that you legally agree to repay all or part of the loan even though you may not be required to according to the terms of your bankruptcy plan. Reaffirming a mortgage that was released through bankruptcy is not a requirement to qualify for a new mortgage in the future but may provide benefits you when you apply for your new loan.
Monthly payments you make on a mortgage after a bankruptcy is discharged typically do not appear on your credit report unless the mortgage is reaffirmed. In some cases reaffirming your mortgage, continuing to make your monthly payments and having those payments reflected on your credit report can help your credit score recover more quickly after a bankruptcy.
The higher your credit score, the better the mortgage terms you qualify for including a lower interest rate and fees potentially. Most loan programs also apply a minimum credit score requirement so the faster your score improves the sooner you may be eligible for these programs.
It is important to highlight that although reaffirming your prior mortgage provides potential advantages, it is not required to get approved for a new mortgage after your bankruptcy. Additionally, lenders impose waiting periods after a bankruptcy before you can qualify for a mortgage regardless of if you reaffirmed your old mortgage. The waiting periods are not reduced because you reaffirmed your loan.
The length of the waiting period depends on the type of bankruptcy, mortgage program and the circumstances that led to the bankruptcy. The waiting periods following a Chapter 7 Bankruptcy before you can apply for a new mortgage are four years for a conventional loan and two years for an FHA or VA loan. The waiting periods after Chapter 13 Bankruptcy before you can apply for a new loan are two years for a conventional mortgage and one year for an FHA or VA loan.
Please note if you also experienced a short sale, default or foreclosure, additional waiting periods may apply.
Review Waiting Periods After Derogatory Credit Events Before You Can Qualify for a Mortgage
The waiting periods are shorter if you experienced an extenuating circumstance such as a job loss, health issue or divorce (for a conventional loan) that caused the bankruptcy. The waiting periods after a Chapter 7 Bankruptcy for an applicant with extenuating circumstances are two years for a conventional mortgage, one year for an FHA mortgage and one-to-two years for a VA loan. For a Chapter 13 Bankruptcy, the waiting periods do not change significantly even if extenuating circumstances factored into the bankruptcy.
We should emphasize that to be eligible for the shorter waiting period, you are required to provide proof of the extenuating events that caused your bankruptcy. For example, you may be required to provide an employment termination document, medical records or a divorce agreement, depending on your situation. Additionally, in most cases lenders request a copy of your bankruptcy documents.
Finally, when you submit your mortgage application you are required to disclose if you experienced a bankruptcy or foreclosure within the past seven years, regardless of if these items appear on your credit report. The lender uses this information to determine the waiting periods that apply to you.
In closing, getting approved for a new mortgage has less to do with if you reaffirmed your mortgage or if the bankruptcy appears on your credit report and more to do with when the bankruptcy occurred and what caused it. Your current credit score and mortgage program also affect your ability to qualify for the loan.
The table below shows mortgage rates and fees for leading lenders in your area. We recommend that you contact multiple lenders to understand the loan you qualify for following a bankruptcy. Shopping lenders is the best way to find the mortgage that is right for you.
"B3-5.3-07, Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit." Selling Guide: Fannie Mae Single Family. Fannie Mae, August 7 2019. Web.