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How Long After Bankruptcy Before Apply for Mortgage?

How long do you have to wait after a bankruptcy before you can apply for a mortgage?

Michael Jensen, Mortgage and Finance Guru
, Mortgage and Finance Guru

A bankruptcy impacts your ability to get a mortgage in two ways. First, lenders impose waiting periods from date of discharge following negative credit events such as a bankruptcy. The length of the waiting period varies depending on the type of bankruptcy and mortgage program.

The second way that a bankruptcy affects getting a mortgage is that it usually significantly lowers your credit score, which can impact your ability to get approved for the loan as well as your mortgage terms and what size loan you qualify for. We explain these two issues in detail below and also review how to get a mortgage following a bankruptcy if you do not want to wait.

As referenced above, lenders apply waiting periods after your bankruptcy is discharged before they accept your loan application.  For example, for a Chapter 7 Bankruptcy the waiting period is four years for a conventional mortgage and two years for an FHA or VA mortgage. For a Chapter 13 Bankruptcy the waiting period is two years for a conventional mortgage and one year for an FHA or VA loan.

Review Waiting Periods After Negative Credit Events Before You Can Apply for a Mortgage

The waiting periods may be shorter if you experienced extenuating circumstances such as a job loss, medical illness or divorce (for a conventional mortgage only) that contributed to the derogatory credit event.  For example, if extenuating circumstances contributed to a Chapter 7 Bankruptcy, the waiting periods are two years for a conventional mortgage (as compared to four years if no circumstances apply), one year for an FHA mortgage and one-to-two years for a VA mortgage.

Please note that you are required to provide documentation that verifies the extenuating circumstance such as a termination or layoff notice for a job loss, health records and bills for a medical illness or the legal documents for a divorce.

The waiting periods following a Chapter 13 Bankruptcy typically do not vary significantly even if extenuating circumstances caused the event. The positive news is that regardless of the issues that led to your bankruptcy, you may be able to qualify for a government-backed loan such as an FHA, USDA or VA mortgage before a Chapter 13 Bankruptcy is discharged.

To qualify for these programs you must be at least twelve months into your Chapter 13 Bankruptcy plan, have made all of your required debt payments on-time and the bankruptcy judge or trustee is required to provide written permission for you to get a mortgage. You must also satisfy the program's guidelines for your credit score, debt-to-income ratio and employment history and meet other requirements. 

Review our comprehensive FHA, USDA and VA mortgage guides, including detailed information on eligibility requirements

In addition to lender-imposed waiting periods, a bankruptcy can also negatively impact your credit score which can affect your ability to qualify for a mortgage and your loan terms.  For a conventional mortgage, applicants with lower credit scores are typically required to pay a higher mortgage rate, which increases your monthly payment and reduces the loan you qualify for.  

Additionally, if your score is too low, you may be ineligible for certain loan programs.  Specifically, you are usually required to have a minimum score of 620 to qualify for a conventional or VA mortgage and a score of 640 to qualify for a USDA mortgage.  For an FHA loan, you are required to have a score of 500 if you make a down payment of at least 10% or 580 if your down payment is between 3.5% and 10% of the property purchase price.  

Now that you understand the negative consequences of a bankruptcy it is also important to highlight that if the applicable waiting period has expired and your credit score has improved, then the bankruptcy may have little or no impact on your ability to get approved for a mortgage.  For example, if your bankruptcy occurred more than four years ago and your credit score is good-to-excellent, you should be eligible for any loan program and qualify for the most favorable loan terms, including the lowest mortgage rate.

The table below shows mortgage terms for leading lenders in your area.  We recommend that you contact multiple lenders to confirm their qualification requirements as guidelines may vary, especially for applicants who have experienced a bankruptcy.  Shopping lenders is also enables you to find the loan program that best meets your needs.

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Current Mortgage Rates as of July 6, 2020
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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

If you are within the mandatory waiting period following a bankruptcy but you do not want to wait to apply for a mortgage, you should consider a private money lender.  These lenders, also known as hard money lenders, charge significantly higher interest rates and fees but may offer more flexible qualification requirements in certain areas, including no waiting period.

With this approach, you get a mortgage through a private money lender after your bankruptcy is discharged and then refinance that loan with a standard mortgage through a traditional lender after your credit profile improves. If you decide to apply for a private money loan be sure to fully understand the much higher costs and potential prepayment penalty charged by the lender.

Review How a Private Money Mortgage Works

You can use the FREEandCLEAR Lender Directory to search over 3,900 lenders by type and loan program.  For example, you can find top-rated private money lenders in your state.

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Sources

"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.

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About the author

Michael Jensen, Mortgage and Finance Guru

Michael is the co-founder of FREEandCLEAR. Michael possesses extensive knowledge about mortgages and finance and has been writing about mortgages for nearly a decade. His work has been featured in leading national and industry publications. More about Michael

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