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Waiting periods to get mortgages after bankruptcy

On Behalf of | Jan 18, 2021 | Real Estate

Chapter 7 bankruptcy helps debtors in North Dakota ease the burden of debt by converting assets to cash to repay creditors. At the end of the bankruptcy, the debtor can get a discharge of their remaining debts. However, filing for bankruptcy often impacts credit scores; this may make getting mortgages harder but not impossible.

Waiting periods for conventional loans

Credit scores commonly stay on a credit report for 10 years after the date of filing for Chapter 7. It takes some time to rebuild credit scores and become creditworthy again. A debtor can usually apply for conventional loans in four years, but each lender has different requirements.

If the debtor filed bankruptcy because of frivolous expenses, they commonly must wait the full four years before applying for a conventional loan. If the debtor filed because of an unforeseen circumstance and has since improved their finances, they may reapply for a loan in 24 months.

However, a debtor could get lower rates the longer they wait to apply. They may also submit a letter to the credit report that explains to the lender why they filed for bankruptcy.

Waiting periods for government loans

The department of Housing and Urban Development offers FHA loans for first-time home buyers with no credit or low credit scores. Mortgage applicants need to show a positive credit history for two years, have a steady job and have a credit score of 580. If the applicant can prove that the bankruptcy occurred because of something out of their control, they may apply in one year after the discharge.

VA loans help veterans get a mortgage without a down payment in two years after bankruptcy discharge. Veterans aren’t commonly subjected to some of the same bankruptcy rules as non-veterans, but they still need a credit score of 620. A debtor may get a loan provided by the United States Department of Agriculture in three years or possibly sooner if the filing occurred because of something out of the debtor’s control.

It is possible to get a mortgage after bankruptcy, but real estate law varies by state. If a debtor has questions about buying after a bankruptcy, they should consult a lawyer about their options.

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