What You Need to Know About Government Rules for Getting A Mortgage After Bankruptcy

What You Need to Know About Government Rules for Getting A Mortgage After Bankruptcy

By |January 20th, 2014|

Want to buy a home after bankruptcy and qualify for a mortgage?

Thanks to various government programs, you can – and a lot faster than you would expect.

The government knows how many people file for bankruptcy each year, and recognizes that preventing them all from becoming homeowners would kill the real estate market.

Luckily there are a number of programs out there to help you get a mortgage after bankruptcy.

FHA Mortgages As Soon As 1 Year After Bankruptcy

Under the Federal Housing Authority’s Back To Work – Extenuating Circumstances program, you can qualify for an FHA mortgage if you filed for bankruptcy as a result of an economic hardship that caused more than a 20% drop in household income:

  • for a Chapter 7 bankruptcy, a minimum of twelve (12) months have elapsed since the date of discharge;
  • for a Chapter 13 bankruptcy that has gone to discharge, all required bankruptcy payments were made on-time;
  • for a Chapter 13 bankruptcy that’s still pending, or a minimum of twelve (12) months of the pay-out period under the bankruptcy has elapsed and all required bankruptcy payments were made on time.

In all other situations, you must wait two (2) years after a Chapter 7 bankruptcy discharge and one (1) year after a Chapter 13 bankruptcy has been discharged or dismissed.


Mortgages For Veterans

The U.S. Department of Veterans Affairs helps Servicemembers, Veterans, and eligible surviving spouses become homeowners by guaranteeing various home loans provided by private lenders.

Generally, Chapter 7 and Chapter 13 bankruptcies discharged more than 2 years ago may be disregarded for the purpose of a VA loan.

For bankruptcy cases discharged between 1-2 years, the lender will look to your recent post-bankruptcy history of satisfactory consumer payments as well as evidence that the bankruptcy was caused by circumstances beyond your control.

For people in a current Chapter 13 bankruptcy, the lender must document that the applicant has satisfactorily paid on the plan for at least 12 months. Court approval of the new loan is also required.


Going To Fannie And Freddie After Bankruptcy

Conventional mortgages tend to be originated under guidelines established by Fannie Mae and Freddie Mac.

If you filed a Chapter 7 bankruptcy, you’ll typically have to wait at least two years to be eligible for a mortgage if your bankruptcy was caused by extenuating circumstances. If no such circumstances exist, then you’ll have to wait four years.

If you filed a Chapter 13 bankruptcy then the minimum waiting period could be as little as one year from discharge.

Not Too Long To Wait

When you get out of bankruptcy there’s a good chance that you don’t have a lot in the way of savings. Take the time to get together a downpayment as well as a cushion to avoid future financial difficulties. By the time you’re ready, you’ll likely be able to apply for – and receive – a mortgage without much trouble at all.

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About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.