Many people worry that they will never again achieve homeownership after bankruptcy, but there are ways for those who are rebuilding to reach this goal. It simply takes focus and dedication – but you also need to understand the facts surrounding this issue. This article will discuss the eligibility requirements and waiting periods associated with obtaining a mortgage after bankruptcy. We will also reveal the various loan programs available to borrowers following a bankruptcy filing.

Whether a standard loan program or a non-qualified mortgage, there are potential and viable ways to get back to homeownership.

Eligibility and Mortgage Waiting Periods for Homeownership After Bankruptcy

Individuals who have filed for bankruptcy and are looking to borrow for a home purchase must carefully comply with the specified waiting periods that lenders have established. These waiting periods typically range from one to four years, depending on the type of bankruptcy that was filed.

The waiting period represents an essential time for borrowers to work on restoring their creditworthiness, as bankruptcy significantly and adversely impacts scores – at least for several years.

Non-Qualified Mortgages

While waiting for the expiration of the applicable waiting period, prospective borrowers may investigate non-qualified mortgage (non-QM) programs as an alternative method of financing. These programs may permit mortgage approval immediately after bankruptcy, but these are often coupled with higher interest rates, and more significant down payments are required.

While non-QM programs offer a route to homeownership more quickly, the higher costs and rates associated with these programs can represent an insurmountable barrier to long-term financial health. For some borrowers, non-QM programs may not be the best option when re-establishing healthy financial footing.

Timeline to Purchasing a Home Post-Bankruptcy

During the determined waiting periods, those who have filed for bankruptcy can use the time to plan their purchase and work on making sure they meet other eligibility requirements.

The influence a bankruptcy has on the homeownership process can be significant, and many people decide to rent a home versus buying during this time. However, a home purchase is possible with thoughtful planning and compliance with waiting periods.

Some mortgage programs, including conventional, FHA, VA, and USDA loans, are specifically designed for borrowers who have undergone bankruptcy. Each of these mortgage options may have different qualifying guidelines and waiting periods associated with them.

  • Conventional loans usually require a four-year waiting period, applied to both Chapter 7 bankruptcy discharge and Chapter 13 dismissal.
  • FHA loans typically require a two-year waiting period, although in some scenarios, the waiting period for FHA loans may be lowered to one year. Minimum credit scores and down payment requirements may apply.
  • VA loans also have a required two-year waiting period, with the potential to be reduced to one year in some unique circumstances. Minimum credit scores and down payment requirements may apply.
  • USDA loans typically require a standard three-year waiting period, but this waiting period can be reduced to two years with documentation of extenuating circumstances.

In summary, those who have been through bankruptcy can work towards homeownership, but it will take time and patience. If you are facing bankruptcy and need expert advice to guide you before, during, and after the filing, call Richard V. Ellis. Our experienced team has helped hundreds of Sarasota residents over the past several decades, and we are here to help you.

Disclaimer: This article is intended to provide general information regarding available financing, but loan programs and terms are always subject to change. The law offices of Richard V. Ellis are not mortgage brokers or financial advisors. We recommend you contact your bank or financial institution if you are ready to discuss acquiring a mortgage.