Mortgage Loan Options After Filing For Bankruptcy

On average, over one million Americans file for bankruptcy each year. The biggest contributing factors to bankruptcy typically involve divorce, loss of employment, or personal or family illness. For people who have recently experienced the bankruptcy process, there are some restrictions related to the home loan qualification related to the bankruptcy. These restrictions are related to the type of bankruptcy and the type of loan that you are seeking. Here are all the Mortgage Loan Options After Bankruptcy.

mortgage loan options bankruptcy

Home Loan Financing After a Chapter 7 Bankruptcy

Chapter 7 Bankruptcy is a referred to as the “do-over, or liquidation” bankruptcy in that debtor files a petition with the bankruptcy court to eliminate unsecured debts like credit cards and medical bills. The process of filing the petition is then assigned to a trustee who will review your qualification for insolvency, sell any nonexempt property or assets to settle the debts with your creditors.

If there are not any non-exempt assets the creditors effectively receive nothing. After the asset distribution (if applicable) by the Trustee, the Bankruptcy is formally discharged, which will effectively start the waiting period for a new home loan. There are not any institutional mortgage lenders that will provide home loan to a person who has filed for bankruptcy that has not been discharged. Late payments after the discharge can further complicate the home loan process and should be communicated to your loan officer up-front in the loan process.

Waiting Periods from Chapter 7 Bankruptcy Discharge

Conventional Loans after a Chapter 7 Bankruptcy Discharge

Both Fannie Mae and Freddie Mac will require a minimum waiting period of forty-eight months from the date of formal discharge from Chapter 7 Bankruptcy to qualify for a purchase or refinance. Under the documentation of extenuating circumstances, death, of the primary wage earner, job loss or illness, the minimum waiting period to finance a home after a Chapter 7 Bankruptcy discharge using a conventional loan program will fall to as little as twelve months. Divorce is unfortunately not considered an extenuating circumstance.

FHA Loans after a Chapter 7 Bankruptcy Discharge

FHA will only require a minimum of twenty-four months from Chapter 7 Bankruptcy discharge to qualify for a new purchase or refinance. FHA also has a program for people with extenuating circumstances that will bring down the limited waiting period to as little as 12 months.

VA Loans after a Chapter 7 Bankruptcy Discharge

VA loan programs will require a minimum of a minimum of twenty-four months from Chapter 7 Bankruptcy discharge to qualify for a new purchase or refinance.

USDA loans after a Chapter 7 Bankruptcy Discharge

USDA loan programs will require a minimum of thirty-six months Chapter 7 Bankruptcy discharge to qualify for a new purchase or refinance. 

Jumbo loans after a Chapter 7 Bankruptcy Discharge

Each individual mortgage bank offering Jumbo loans will have a different outlook on lending to someone who has gone thru a Chapter 7 Bankruptcy discharge. There are Jumbo lenders who will simply not provide financing to someone who has had a bankruptcy, some will require a seven-year waiting period. There are many Jumbo lenders that will provide financing in as little as twenty-four months. A loan officer can only provide lending options based on the products he or she has available if your loan officer does not have access to the product that you need, its always as good idea to secure a second opinion.

Portfolio Lending Options after a Chapter 7 Bankruptcy Discharge

There are small mortgage banks that offer mortgage loans to people who have experienced a Chapter 7 Bankruptcy Discharge in as little as one day from discharge. These lenders are looking for a minimum down-payment of 40% and the borrower will anticipate interest rates above market based on the risk and lack of availability.

Home Loan Financing After a Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is referred to as the “reorganization or wage earners” bankruptcy. Effectively the plan allows debtors with documented income to file a plan to pay off all or a portion of their debts over a three to five- year period of time. The process of Chapter 13 discharge can be a bit more complicated than that of Chapter 7 and in some situations, the filing can be dismissed by the Bankruptcy court. There are timeframe limitations from both the discharge and dismissal of Chapter 13 Bankruptcy and similar to Chapter 7, any late payments from the discharge will complicate and potentially prevent home loan financing.

Waiting Periods from Chapter 13 Bankruptcy Discharge or Dismissal

Conventional Loans after a Chapter 13 Bankruptcy Discharge or Dismissal

Fannie Mae and Freddie Mac will require a minimum waiting period of forty-eight months from the date of formal discharge from Chapter 13 Bankruptcy to qualify for a purchase or refinance. If the Bankruptcy was dismissed, the waiting period falls to twenty-four months.

FHA Loans after a Chapter 13 Bankruptcy Discharge or Dismissal

FHA will only require a period of twelve months from Chapter 13 Bankruptcy discharge to qualify for a new purchase or refinance. FHA does not have a waiting period from a Chapter 13 Bankruptcy dismissal.

VA Loans after a Chapter 13 Bankruptcy Discharge or Dismissal

VA loan programs will require a minimum of a minimum of twelve- months from Chapter 13 Bankruptcy discharge or dismissal to qualify for a new purchase or refinance.

USDA Loans after a Chapter 13 Bankruptcy Discharge or Dismissal

USDA loan programs will require a minimum of thirty-six months Chapter 13 Bankruptcy discharge or dismissal to qualify for a new purchase or refinance.

Jumbo Loans after a Chapter 13 Bankruptcy Discharge or Dismissal

Jumbo lenders will each have a different position on lending to someone who has gone thru a Chapter 13 Bankruptcy discharge or dismissal. There are Jumbo lenders who will simply not provide financing to someone who has had a bankruptcy, some will require a seven-year waiting period. There are many Jumbo lenders that will provide financing in as little as twenty-four months. A loan officer can only provide lending options based on the products he or she has available if your loan officer does not have access to the product that you need, its always as good idea to secure a second opinion.

mortgage loan bankruptcy

Portfolio Lending Options after a Chapter 13 Bankruptcy Discharge

There are small mortgage banks that offer mortgage loans to people who have experienced a Chapter 7 Bankruptcy Discharge in as little as one day from discharge. These lenders are looking for a minimum down-payment of 40% and the borrower will anticipate interest rates above market-based on the risk and lack of availability

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Chad Baker is Regional Manager for RPM Mortgage. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2016.
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