How Long After Bankruptcy Can You Get a Mortgage Approved?

Bankruptcy can be a challenging and stressful experience, significantly impacting your financial life and credit score. However, it’s important to know that bankruptcy doesn’t permanently bar you from obtaining a home mortgage. With careful planning, discipline, and patience, you can rebuild your credit and qualify for a mortgage after a bankruptcy has been discharged. Whether you want to refinance your existing mortgage or need a loan to buy a new home, we will help you explore the opportunities with banks and lenders you can trust.

How Long After Bankruptcy Can I Get a Mortgage?

This article will explore how long you need to wait after bankruptcy to get a mortgage, the factors that affect this timeline, and steps you can take to improve your chances of getting approved.

Types of Bankruptcy
Understanding the type of bankruptcy you filed is crucial, as it influences the waiting period before you can apply for a mortgage.

Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves selling off non-exempt assets to pay creditors. This type of bankruptcy can stay on your credit report for up to ten years.

Chapter 13 Bankruptcy
Chapter 13 bankruptcy, or reorganization bankruptcy, allows you to keep your assets while creating a repayment plan to pay off debts over three to five years. This type of bankruptcy remains on your credit report for seven years.

Waiting Periods for Different Types of Mortgages

The waiting period before you can apply for a mortgage varies depending on the type of loan and the bankruptcy filed. According to the RefiGuide.org, this is how long after a bankruptcy it takes to get a mortgage. They listed the standard waiting periods for different types of mortgages:

FHA Home Loans
Federal Housing Administration (FHA) loans are popular among first-time homebuyers due to their lower credit score requirements and smaller down payments.

The waiting periods for FHA loans are:

Chapter 7 Bankruptcy: You must wait at least two years from the discharge date of your Chapter 7 bankruptcy before applying for an FHA loan. During this time, you must re-establish good credit.
Chapter 13 Bankruptcy: You can apply for an FHA loan after one year of making timely payments under your Chapter 13 repayment plan, with the court’s approval. You also need to provide a letter from your trustee.

VA Home Loans
Veterans Affairs (VA) loans are available to military service members, veterans, and eligible spouses. These loans offer favorable terms, including no down payment and no private mortgage insurance (PMI).

The waiting periods for VA loans are:

Chapter 7 Bankruptcy: You must wait at least two years from the discharge date of your Chapter 7 bankruptcy before applying for a VA loan.
Chapter 13 Bankruptcy: You can apply for a VA loan after one year of making timely payments under your Chapter 13 repayment plan, with the court’s approval and a letter from your trustee.

USDA Home Loans
United States Department of Agriculture (USDA) loans are designed for low-to-moderate-income borrowers in rural areas.

The waiting periods for USDA loans are:

Chapter 7 Bankruptcy: You must wait at least three years from the discharge date of your Chapter 7 bankruptcy before applying for a USDA loan.
Chapter 13 Bankruptcy: You can apply for a USDA loan after one year of making timely payments under your Chapter 13 repayment plan, with the court’s approval and a letter from your trustee.

Conventional Home Loans
Conventional loans are not backed by the government and typically have stricter credit and income requirements.

The waiting periods for conventional loans are:

Chapter 7 Bankruptcy: You must wait at least four years from the discharge date of your Chapter 7 bankruptcy before applying for a conventional loan.
Chapter 13 Bankruptcy: You must wait at least two years from the discharge date or four years from the dismissal date of your Chapter 13 bankruptcy before applying for a conventional loan.

Factors Affecting Your Ability to Get a Mortgage

The key to getting approved for a mortgage after a bankruptcy is to take proactive steps to improve your credit and regain financial stability. Securing a mortgage after bankruptcy involves navigating several complexities. In addition to the various types of home mortgage loans, each with its own set of rules, there are different types of bankruptcy to consider. Both of these factors influence how long you must wait before you can apply for a mortgage after your bankruptcy has been discharged.

There are several factors can influence your ability to get a mortgage after bankruptcy. Understanding these factors and taking steps to improve them can help you qualify sooner.

Credit Score
Your credit score is one of the most critical factors lenders consider when evaluating your mortgage application. Bankruptcy significantly lowers your credit score, but you can take steps to rebuild it:

Pay Your Bills on Time: Consistently making on-time payments is one of the most effective ways to improve your credit score.
Keep Balances Low: Maintain low balances on credit cards and other revolving credit accounts.
Avoid New Debt: Avoid taking on new debt, as it can further lower your credit score and signal to lenders that you are not financially stable.

Employment History
Lenders prefer borrowers with a stable employment history. Consistent employment shows that you have a reliable source of income to make your mortgage payments. Aim for at least two years of steady employment before applying for a mortgage.

Income and Debt-to-Income Ratio
Lenders assess your ability to repay the mortgage by evaluating your income and debt-to-income (DTI) ratio. A lower DTI ratio indicates that you have sufficient income to cover your debt obligations. To improve your DTI ratio:

Increase Your Income: Consider taking on additional work or finding higher-paying employment.
Pay Down Debt: Reduce your debt by paying off outstanding loans and credit card balances.

Down Payment
A larger down payment reduces the lender’s risk and can improve your chances of getting approved for a mortgage after a bankruptcy. Aim for a down payment of at least 20% to avoid private mortgage insurance (PMI) and secure better home loan terms.

Bankruptcy Resources:

Learn More on the Consumer Financial Protection Bureau and Bankruptcy Reporting

Free or Reduced Cost Bankruptcy Help for Consumers

Steps to Improve Your Chances of Getting a Mortgage

Rebuilding your financial profile after bankruptcy takes time and effort. Here are some steps you can take to improve your chances of getting approved for a mortgage:

1. Rebuild Your Credit
Focus on rebuilding your credit by making timely payments, keeping balances low, and avoiding new debt. Consider obtaining a secured credit card to help establish a positive payment history.

2. Create a Budget
Develop a budget to manage your finances effectively. Track your income and expenses to ensure you live within your means and save for a down payment.

3. Save for a Down Payment
Start saving for a down payment as soon as possible. A larger down payment can improve your chances of getting approved for a mortgage and secure better loan terms.

4. Seek Professional Advice
Consult with a mortgage advisor or financial counselor to develop a plan for rebuilding your credit and improving your financial profile. They can provide personalized advice and help you navigate the mortgage application process.

5. Obtain Pre-Approval
Getting pre-approved for a mortgage can give you a better understanding of what you can afford and show sellers that you are a serious buyer. Pre-approval involves a preliminary evaluation of your financial profile and can help you identify areas that need improvement.

How to Improve Your Credit Scores After Bankruptcy

Improving your credit score is crucial when applying for a mortgage, especially after a bankruptcy. A higher credit score not only speeds up the approval process but also results in a lower interest rate, significantly affecting your monthly payments and the total amount paid over the life of the mortgage loan.

Here are some steps to help you rebuild your credit:

1. Make On-Time Payments: Consistently pay all your debts on time, especially credit cards. Timely payments are one of the most effective ways to improve your credit score.
2. Manage Credit Utilization: Keep your credit card usage below 30% of your credit limit. This credit utilization rate is vital for maintaining a good credit score.
3. Understand Key Factors: Payment history and credit utilization rate make up 65% of your credit score. Missing payments and overspending on credit cards can severely damage your score.
4. Maintain a Mix of Credit: A diverse credit portfolio (mortgages, car loans, student loans) positively impacts your score. Balancing the use of long-held credit cards with newer ones also helps.

By focusing on these strategies, you can expedite your credit repair process and improve your chances of qualifying for a competitive mortgage after bankruptcy.

Summarizing Steps to Get a Mortgage After a Bankruptcy Discharge

While bankruptcy can significantly impact your ability to obtain a mortgage, it doesn’t permanently prevent you from becoming a homeowner. The waiting period before you can apply for a mortgage varies depending on the type of bankruptcy and the loan you seek. By focusing on rebuilding your credit, maintaining a stable employment history, managing your debt, and saving for a down payment, you can improve your chances of getting approved for a mortgage after bankruptcy.