*disclaimer: Not all individuals will qualify for each loan type and/or scenario. Please contact me to see if you'd qualify for these loan products and/or discuss your options.
Financial struggles happen. When those financial burdens strike, some people have to take drastic measures in order to keep their head above water. Once it's decided upon to file for bankruptcy, many unsettling questions may rush to mind. Is it impossible to get a loan if you file for bankruptcy? If not, how long will it be before the borrower will be able to finance a home?
Thankfully, bankruptcies aren't the end-all-be-all when it comes to mortgages. Two of the most common are Chapter 7, and Chapter 13 bankruptcies. Each of these situations have their own guidelines and time periods before it's possible to get a loan, but a roof over your head could indicate a new beginning after a troubling financial time.
A chapter 7 bankruptcy is the most common bankruptcy that is filed for. Once a chapter 7 is granted, the court wipes away the borrower's debt, and their credit takes a massive hit. The bankruptcy will stay on the borrower's credit report for 10 years before being released.
Here's the good news: you don't have to wait the full 10 years before purchasing a home becomes an option.
On a conventional loan*, the borrower becomes eligible for a loan four years after discharge, or three years with extenuating circumstances. Extenuating circumstances are hard to come by, so speak with your loan officer to see what would be considered, and what would not.
There are other loan programs that borrower's could qualify for with a chapter 7 bankruptcy. For instance, they could qualify for a USDA loan* in three years, and an FHA* or VA* loan in two years.
Chapter 13 bankruptcies can be just as painful as a chapter 7, but the borrower's debts won't be completely wiped away. The borrower and judge will come up with a payment plan for a Chapter 13 bankruptcy, and it will remain on the borrower's credit report for seven years.
Once again, the borrower won't have to wait for the full seven years before they would be able to qualify for home financing.
The magic number for a conventional loan* is four years from dismissal. If the Chapter 13 bankruptcy was discharged, the borrower would have to wait four years plus two years from the bankruptcy's dismissal.
A USDA loan* would see the borrower have to wait only one year before they would be able to qualify. On FHA* and VA* loans, the borrower can apply once the bankruptcy is discharged or dismissed.
A key piece of information that Loan Officers will look at when determining if a borrower can qualify or not, is their credit score. This is why it is extremely important that once a borrower declares bankruptcy, that they start building back their credit as quickly as possible. Be wise when using credit, it's not smart to make massive financing decisions right off the bat, but it's okay to use a credit card, as long as it is paid off immediately.
For more questions or ideas on bankruptcies and building back credit, talk with your loan officer. Homes are available, don't let a bump in the road stop you from living your dream.
*disclaimer: Not all individuals will qualify for each loan type and/or scenario. Please contact me to see if you'd qualify for these loan products and/or discuss your options.
Brayden Ramsay NMLS #1997195
Momentum Loans NMLS # 1606597
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