At JVM Lending, one of the most common questions we receive from borrowers is, How soon can I get a mortgage after filing for bankruptcy protection?
The answer depends on several factors, including the type of bankruptcy you filed, the type of loan program you’re interested in, and how quickly you’re able to rebuild your credit. Let’s break down the waiting periods and requirements for the most common scenarios.
Understanding the Types of Bankruptcy
First, it’s important to understand the differences between the two most common types of personal bankruptcy: Chapter 7 and Chapter 13.
- Chapter 7 Bankruptcy: Also known as liquidation bankruptcy, this process involves selling off non-exempt assets to pay creditors. Chapter 7 is typically used by individuals who don’t have a steady income or are overwhelmed by unsecured debts like credit card bills. Once the assets are liquidated and debts are discharged, the borrower is released from most types of debt.
- Chapter 13 Bankruptcy: Known as a wage earner’s plan, Chapter 13 allows individuals with regular income to create a repayment plan for part or all of their debts over three to five years. This type of bankruptcy is common for those who want to keep their home or other assets but need help reorganizing their debt payments.
Waiting Periods for Getting A Mortgage After Chapter 13 Bankruptcy
For borrowers who have filed for Chapter 13 bankruptcy, the timeline for getting a mortgage depends on whether the bankruptcy is still active or has been discharged.
- One Year After Filing: Borrowers who are still in a Chapter 13 bankruptcy may be eligible for an FHA loan after just one year of making on-time payments to the bankruptcy trustee. This is one of the few loan programs that allow borrowers to obtain a mortgage while still under bankruptcy protection, provided they meet certain requirements. These requirements include showing a history of on-time payments and approval from the bankruptcy trustee. (You can check out the video below for a more detailed discussion on FHA rules and requirements.)
- One Year After Discharge: Once the Chapter 13 bankruptcy has been discharged (i.e., the repayment plan is complete), borrowers only need to wait one year before applying for an FHA loan. This short waiting period is beneficial for borrowers who have successfully completed their bankruptcy plan and are ready to move forward with homeownership.
Waiting Periods for Getting A Mortgage After Chapter 7 Bankruptcy
For borrowers who have filed for Chapter 7 bankruptcy, the waiting period is different.
For FHA loans, borrowers need to wait a minimum of two years from the date of discharge before they can qualify for a mortgage. This is the standard waiting period for FHA financing after Chapter 7 bankruptcy, though other loan programs, such as conventional loans, may have longer waiting periods of up to four years.
The Non-QM Exceptions
There are some non-qualified mortgages or “Non-QM” loans that have NO waiting periods at all. Borrowers can obtain mortgage immediately after their bankruptcy is discharged. These loans, however, typically have higher rates and larger equity or down payment requirements.
What Other Loan Programs Are Available After Bankruptcy?
While FHA loans are the most popular choice for borrowers coming out of bankruptcy due to their lower credit score requirements and flexible eligibility, there are other mortgage options available. Here’s a quick overview of some other programs:
Conventional Loans
Conventional loans typically have stricter credit and income requirements compared to FHA loans. For borrowers with a Chapter 13 bankruptcy, the waiting period is typically two years after discharge or four years after dismissal. For Chapter 7, it’s typically a four-year waiting period from the discharge date. However, if you’ve re-established good credit and have a strong financial profile, conventional loans may offer better interest rates and terms.
VA Loans
If you’re a qualified veteran or active-duty service member, you may be eligible for a VA loan. VA loans do not require a down payment, making them an attractive option for veterans coming out of bankruptcy. The waiting period for VA loans after bankruptcy is typically two years after Chapter 7 and one year after Chapter 13 (with trustee approval).
Non-QM Loans
For borrowers who don’t meet the traditional credit or waiting period requirements, non-QM (non-qualified mortgage) loans may be a viable option. These loans are designed for borrowers with unique circumstances, such as recent bankruptcies, and can offer more flexible terms. However, they typically come with higher interest rates.
How to Rebuild Credit After Bankruptcy
After filing for bankruptcy, it’s crucial to re-establish your credit if you want to qualify for a mortgage as soon as possible. Here are some key steps you can take:
- Make On-Time Payments: One of the most important factors in rebuilding credit is paying all of your bills on time after your bankruptcy. Lenders will closely examine your payment history, so be diligent about staying current on all your remaining debts.
- Use Secured Credit Cards: Setting up secured credit cards is an excellent way to begin rebuilding your credit. A secured card requires a deposit that serves as collateral, but it functions just like a regular credit card. By making small purchases and paying off the balance each month, you can establish a positive credit history.
- Keep Credit Accounts Active: Lenders like to see at least two to three active credit accounts on your credit report. These can be secured credit cards, car loans, or installment loans. The key is to maintain low balances and make timely payments.
- Monitor Your Credit: Regularly check your credit report to ensure that all accounts are reported correctly and any negative marks related to your bankruptcy are properly addressed. You’re entitled to one free credit report each year from the major credit bureaus (Experian, TransUnion, and Equifax).
Special Considerations: Down Payments After Bankruptcy
While making a larger down payment—such as 30% to 35% of the home’s purchase price—can strengthen your overall application and may help you qualify for better interest rates, it’s important to understand that down payment size typically cannot override the mandatory minimum waiting periods set by major loan programs (FHA, VA, conventional).
However, a larger down payment can be advantageous in other ways:
- It may help you qualify for a loan if you have other compensating factors
- It could lead to better interest rates
- It reduces your monthly payments
- It might help you qualify for certain non-QM loans that have different requirements
- It demonstrates financial responsibility and improved money management
Remember that waiting periods are designed to ensure borrowers have had sufficient time to rebuild their credit and demonstrate financial stability after bankruptcy, regardless of down payment size.
NOTE: A large down payment can override the waiting period for some non-QM loans. Some lenders have no waiting period at all if down payments are in the 30% to 35% range.
Frequently Asked Questions
How soon can I get a mortgage after filing for bankruptcy?
The timeline depends on the type of bankruptcy you filed and the loan program you are pursuing. For Chapter 13, you may be eligible for an FHA loan after just one year of on-time payments, even while the bankruptcy is still active. For Chapter 7, the standard waiting period is two years from the discharge date for FHA loans and four years for conventional loans. Some non-QM loans have no waiting period at all, though they come with higher rates and larger down payment requirements.
What is the difference between Chapter 7 and Chapter 13 bankruptcy for mortgage purposes?
Chapter 7 is a liquidation bankruptcy where non-exempt assets are sold to pay creditors and most debts are discharged. Chapter 13 is a wage earner’s repayment plan that allows individuals with regular income to pay back part or all of their debts over three to five years. Lenders view Chapter 13 more favorably because it demonstrates a willingness to repay debts, which is why its waiting periods for mortgage eligibility are generally shorter.
Can I get a mortgage while still in an active Chapter 13 bankruptcy?
Yes, in some cases. FHA loans allow borrowers who are still in an active Chapter 13 bankruptcy to apply after making at least one year of on-time payments to the bankruptcy trustee. Approval from the trustee is also required. This is one of the few loan programs that permits mortgage financing while bankruptcy protection is still in place.
What loan programs are available after bankruptcy?
FHA loans are the most popular option due to their flexible credit requirements and shorter waiting periods. VA loans are available to eligible veterans with a two-year wait after Chapter 7 and a one-year wait after Chapter 13 with trustee approval. Conventional loans require a four-year wait after Chapter 7 and typically two years after Chapter 13 discharge. Non-QM loans offer the most flexibility, with some lenders imposing no waiting period, though they come with higher interest rates and larger down payment requirements.
Can a large down payment help me get a mortgage sooner after bankruptcy?
For most loan programs, a larger down payment cannot override the mandatory minimum waiting periods set by FHA, VA, or conventional guidelines. However, a larger down payment can strengthen your overall application, potentially improve your interest rate, reduce your monthly payments, and may help you qualify for certain non-QM loans. Some non-QM lenders will waive the waiting period entirely for down payments in the 30% to 35% range.
How can I rebuild my credit after bankruptcy to qualify for a mortgage faster?
The most important steps are making all payments on time, opening secured credit cards to establish positive payment history, and keeping at least two to three active credit accounts with low balances. Regularly monitoring your credit report to ensure accuracy and address any errors is also essential. Lenders will closely review your post-bankruptcy payment history, so demonstrating consistent financial responsibility is key to qualifying as quickly as possible.
Why Choose JVM Lending?
At JVM Lending, we have extensive experience helping borrowers navigate the complexities of getting a mortgage after bankruptcy. Every situation is unique, and we take the time to understand your specific financial circumstances, so we can provide the best loan options for your needs. Whether you’re looking at FHA, conventional, VA, or non-QM loans, we’ll guide you through every step of the process.
Our team of experts specializes in bankruptcy-related mortgages and will help you assess your situation, rebuild your credit, and find the right financing solution.
Contact JVM Lending for More Information
If you’ve recently filed for bankruptcy and are interested in learning more about your mortgage options, contact us today. Our team is here to provide expert guidance and personalized service to help you achieve your homeownership goals.
