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Mortgage After Chapter 7 Bankruptcy
How long after a chapter 7 discharge can I purchase a home? What mortgage loan programs do I qualify for after Chapter 7 Bankruptcy and what are the waiting period requirements? What are the eligibility requirements to qualify for a mortgage after Chapter 7 Bankruptcy?
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It’s one thing to go through a Chapter 7 bankruptcy discharge and start the mortgage application process again, but certain conditions or time limits must be observed depending on the type of mortgage one is seeking. Here are some brief descriptions of each type.
Waiting Periods After Discharge:
- FHA Loans: 2 years from the date of the discharge.
- VA Loans: 2 years from the date of the discharge.
- USDA Loans: 3 years from the date of the discharge.
- Conventional Loans (Fannie Mae/Freddie Mac): 4 years from the discharge date.
- Non-QM Loans: No waiting period after bankruptcy but requires at least a 20% down payment.
Note that all the above waiting periods may be waived occasionally if there are “extenuating circumstances” for which the bankruptcy may be justified.
Credit Score Requirements
FHA Loans: 580 is acceptable, but a mortgage lender can have lender overlays on credit scores and may ask for higher credit scores.
VA Loans: No such requirement exists, but mortgage lenders usually want at least this figure.
USDA Loans: There are no minimum credit score requirements. However, most lenders have overlays on credit scores for USDA loans and may require a credit score of 640.
Conventional Loans: Fannie Mae and Freddie Mac guidelines on conventional loans require a minimum credit score 620.
New Credit: Prove that credit has been responsibly utilized after the bankruptcy.
Employment: I have been in employment for a minimum of two years.
Down Payment: HUD requires a 580 credit score for a 3.5% down payment for a home purchase FHA loan.
Down Payment on VA Loans:
Zero down payment required. Lenders offer 100% financing on VA loans. VA loans have no maximum debt-to-income ratio as long as the borrower has strong residual income.
Down Payment on USDA Loans:
There is no down payment required. Lenders offer 100% financing on VA loans. The maximumThe maximum debt-to-income ratio is 29% front-end and 41% back-end.
Down Payment on Conventional Loans:
Down payments on conventional loans range from 3 percent to 20 percent, depending on the nature of the program under consideration.
Debt-to-Income Ratio on conventional loans is capped at 50% DTI.
No New Delinquencies Except for bankruptcy discharge. The applicant must NOT have any derogatory credit after bankruptcy discharge.
Explanation Letter: A few lenders might ask for a letter stating why a particular borrower has a history of filing for bankruptcy.
Housing Payment History: If you rent out accommodation, records of rent repayments may be of value.
Saving/Reserves: This shows that there is a capability to save and stand after the stroke of bankruptcy. These documents support bankruptcy discharge papers provided when such discharge occurred. Additional Considerations Manual Underwriting:
Compensating factors are positive factors of the borrower, such as a higher down payment, reserves, other income seasoned at least one year but not used as qualified income, and other positive factors that lower the lender’s risk. Re-establishing credit after the bankruptcy discharge is a big compensating factor. A payment shock of five percent or less is another big compensating factor.