Bankruptcy and a Two Year Wait for a Mortgage After

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A Post Bankruptcy Question

This personal bankruptcy question was raised today from a debtor posting on a bankruptcy forum website: “Do we have a chance of getting a mortgage loan approved before two years are up after we filed a Chapter 7 bankruptcy?

The Personal Bankruptcy Story

The debtor posing this question posted these details in a personal bankruptcy story on a bankruptcy forum website today: “We discharged [Chapter 7] in October 2010. We have never had a mortgage and are looking to buy a house for around $130K max. Our income is around $70K not including bonuses. My wife is a nurse so her job is as stable as it comes. We have one car loan with about $3K left and a student loan that is $15K. We have 2 credit cards that are at a zero balance right now that we have just been using for small things and then paying them off. Within about 90 days we are expecting to have at minimum $10K for a down payment on a home.”

Answer to the Debtor’s Question

Technically, there is no overriding law that says you must wait any particular time to get a loan for a new home after you have filed for any type of bankruptcy protection. Each mortgage lending institution has its own rules about when they will lend mortgage money to someone who has filed a bankruptcy petition, and there are always exceptions to any rule.

The Golden Rule in determining when you might be able to get a mortgage loan falls on the federal government mortgage lending institutions, the FHA and VA. Since bankruptcies are governed primarily by federal law, it stands to reason most people look to these two federal agencies in determining what the guidelines are for getting the earliest mortgage financing after filing a bankruptcy.

The Mortgage Rules for Lending After Filing Bankruptcy

  • If you filed a Chapter 7

The FHA and Va normally require you to wait two years after bankruptcy discharge before they will consider your application. These two government agencies will make exceptions to the rule if the discharge has happened at least one year but less than two when you can prove to them your bankruptcy was due to unusual circumstances. These unusual circumstances include such things as a sudden job loss, acts of nature, medical emergencies and the like.

Conventional lenders usually will consider a person who is post bankruptcy after four years, but each particular institution has its own rules on how they will lend and when they will lend mortgage money.

The USDA Rural Development normally requires a person to wait 3 years after discharge before they will consider them for a mortgage loan, but they will make an exception with reestablished credit and an underwriter’s waiver.

The FHA and VA will allow a debtor to purchase a home after one year from date of discharge if all payments in the bankruptcy were made on time and payment performance is satisfactory.

Conventional lenders normally require 2 years from a discharged date or 4 years from a dismissal date.

The USDA Rural Development usually requires 3 years after a dismissal, but it will make an exception with reestablished credit and an underwriter’s waiver.

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