Struggles are a part of life. Experiencing bankruptcy or foreclosure doesn’t mean you can’t realize your dream of owning a home – it just means you might have to wait a bit longer and take a few extra steps.
If a person is going to declare bankruptcy, most likely it will be Chapter 7 or Chapter 13. The type of bankruptcy experience plays a role in how soon you’ll be able to get a mortgage. It also depends on the type of loan or program being pursued.
For example, with Chapter 7 bankruptcy, the waiting period before you can get a mortgage begins as soon as the bankruptcy is discharged. You’ll typically wait about four years to get a conventional mortgage and two years for FHA or VA loans. With Chapter 13 bankruptcies, you may be able to get a mortgage as soon as two years after discharge, and VA and FHA loan requirements might be even more flexible. If you’re eligible for one of these government loan programs, you might be able to apply for a mortgage as little as a year after filing Chapter 13 bankruptcy – some requirements might be 12 months of on time payments and permission from the court to assume more debt.
Foreclosure is a little trickier than bankruptcy. Typically, you’ll have to wait around seven years from the foreclosure date for a traditional mortgage loan. Extenuating circumstances resulting from something truly out of your control might shorten the waiting period, but not always. You’ll also need a down payment of at least 10%.
Three years after foreclosure, you may be able to pursue an FHA loan, and VA lenders can approve a mortgage after two years. VA loans have different requirements, so you may be able to get a loan before the two year mark – depending on the lender.
Government loans provide more flexibility when it comes to foreclosure. However, if the foreclosure occurred on an FHA, VA, or USDA loan, you might be hit with an automatic three-year wait before you can pursue another mortgage. Again, a lot of these contingencies depend on your individual situation.
After Bankruptcy and Foreclosure
When bankruptcy and foreclosure are combined, things are a little more complicated. You might have to go through two waiting periods, although it depends on both your lender and the type of loan you’re applying for. You will likely have to wait until you are no longer legally responsible for the mortgage debt from the foreclosure. If the loan is discharged in bankruptcy, lenders may disregard the foreclosure – however, bankruptcy and foreclosure seriously damage your credit, so you may not qualify for a mortgage at all until you repair your credit score.
Michigan First Mortgage has the Turning Point loan, which is designed for people with the money to buy a home, but less than stellar credit history. Even with bankruptcy or foreclosure, the quest for a mortgage is not hopeless – we might be able to help you.
The bottom line? Bankruptcy and foreclosure are major obstacles to overcome, but with time and diligent work, you may be able to get another mortgage and a fresh start.