A lot has changed in the mortgage industry over the past few years starting in late 2006 until the present in August 2008. Gone are the days of getting a mortgage 1 day after your Chapter 7 Bankruptcy discharge. There are no more lenders who will offer that kind of financing, at least for now and into the foreseeable future. But, having a bankruptcy on your credit record is not the end of possibility when it comes to owning a home.
There are some very specific time lines that you will need to follow before you can get a mortgage to buy a home or to refinance for that matter if you were able to keep your home through your bankruptcy. Below you’ll see the timeframes that you’ll face as you get back on your feet again and head towards buying a home and getting a mortgage.
FHA Home Loan Qualifications Following Bankruptcy – VA Loans Too
- In most cases you will have to wait at least 2 years following a Chapter 7 Bankruptcy to be able to qualify for any type of mortgage. Unless Congress and the next U.S. President change FHA Loan Guidelines, as it stands now, your best shot for a mortgage right at 2 years is going to be an FHA mortgage. The reason for this is two-fold.
The first reason is that typically following a bankruptcy you will have lower credit scores. FHA doesn’t specifically have any credit score guidelines although there is a trend with FHA lenders to not approve loans with credit scores less than 580-600.
Second, Although Fannie Mae and Freddie Mac also have allowances for mortgages 2 years after a Chapter 7 Bankruptcy, they charge some pretty high fees in points and even increases to interest rates. These fees make the FHA loan alternative very attractive for most home buyers recovering from Bankruptcy.
- In order to qualify for an FHA home loan after a Chapter 7 Bankruptcy you will need to have perfect credit history for the whole two years since the bankruptcy. You will also need to have reestablished some credit and prove that you have learned how to manage your credit. This is all typically proven by having good credit and having established new credit accounts and by using the accounts without getting overextended.
- Chapter 13 Bankruptcies are handled a little differently with FHA. You will need to be in the bankruptcy payment period for at least 1 year and have made all of your payments to your bankruptcy trustee as agreed and you will also need permission from the trustee to allow you to purchase a home.
Fannie Mae and Freddie Mac Mortgage Qualification Following Bankruptcy
- Fannie Mae and Freddie Mac will allow someone who has a Chapter 7 Bankruptcy to get a mortgage after 2 years from the discharge date of the bankruptcy. Although available, you will need to have at least a credit score of 640 to qualify per the requirements of many mortgage lenders. You will also face heavy fees and increased mortgage interest rates and PMI, Private Mortgage Insurance rates. All three of these conditions make FHA an appealing loan option following a Chapter 7 Bankruptcy.
- Similarly to FHA and VA requirements you will need to keep your credit history virtually perfect, reestablish some credit, and prove that you have learned your credit lessons by not getting over extended again.
Credit Restoration And Credit Repair Following A Bankruptcy
In most cases following a bankruptcy there is work to do to clean up your credit report. So your first step following a bankruptcy – a few months after your discharge – is to get a copy of your credit report and review it. You will want to go through it with a fine tooth comb making sure that it is accurate.
One of the biggest things to check is whether the accounts that are shown in your credit report that were included in your bankruptcy have something like “Included In Bankruptcy” noted on their respective account records.
You will also want to make sure that whatever credit accounts wiped clean in your bankruptcy no longer show balances, past due amounts, or monthly payment information in the individual account records on your credit report. You can dispute any of these items with letters to each credit bureau with copies of your bankruptcy paperwork including your discharge letter and schedule of discharge creditors. You’ll want to start this work on your credit report right away. The quicker the better as it will ensure a longer time for your credit scores to rebound.
In summary, filing for personal bankruptcy protection is not the end of the world or your home ownership opportunity. You will need to put in a few years with perfect credit history. While you wait, get your credit report in proper order and make sure that any mistakes get cleaned up using credit repair techniques. Also, make sure to reestablish some credit accounts.
If you want more information on this topic please ask EdGAR.
