Having a bankruptcy filing on your record can make certain things, such as getting a mortgage loan, much more difficult. However, getting any kind of loan after bankruptcy isn’t impossible. Getting a mortgage after Chapter 13 discharge may be tough, but there are ways you can increase your chances of securing a mortgage after bankruptcy.
At O’Bryan Law Offices, we understand that, in many cases, extenuating circumstances can sometimes force someone to take on too much new debt. Maybe it was a bad car accident or a job loss. Regardless of the reason, if you’re having trouble with the mortgage process after your Chapter 13 bankruptcy case, our attorneys are here to help. To schedule a free consultation with us about your situation, please call our Louisville bankruptcy lawyers at 502-339-0222 today.
Buying a House and Getting a Mortgage After Chapter 13
If you’ve recently filed for Chapter 13 bankruptcy, you may wonder whether or not you’ll qualify for a mortgage once you receive your discharge. The good news is that qualifying for many mortgage programs is much easier after Chapter 13 than after Chapter 7. Some Chapter 13 filers even qualify before they ever receive their discharge.
It’s important to remember, however, that you’ll still need to make each mortgage payment on time, as well as meet the loan requirements. In the following sections, we outline tips for getting a mortgage loan after you file for Chapter 13.
Can You Buy a House After Chapter 13 Bankruptcy?
Absolutely. It is entirely possible to buy a house after you file for Chapter 13 bankruptcy. In fact, some filers can even qualify for loans while they’re still in the middle of their bankruptcy case. Also, many mortgage lenders tend to go a little easier on Chapter 13 filers than on Chapter 7 filers. This is because, in Chapter 13, the bankruptcy petitioner has repaid at least part of their unsecured debts.
Keep in mind that it will still be difficult to qualify for a home loan while you’re in the middle of a bankruptcy case. Lenders will want to see that you’ve made a real effort to improve your credit score and to improve your debt-to-income ratio. If you can show them how hard you’ve worked to improve your finances, they will likely approve you for a loan.
The type of mortgage you seek will determine the specific requirements you must meet to qualify. Generally, government-backed mortgage loans, such as FHA loans, USDA loans, and VA loans, are more lenient with those who have bankruptcies on their credit report. Conforming loans and conventional loans, however, are likely to have a longer waiting period.
How Long Do You Have to Wait to Buy a House After Chapter 13?
The waiting period for buying a house after Chapter 13 depends on two main factors: the status of your bankruptcy case and the specific loan program you choose. Those hoping to get USDA, FHA, and VA loans may qualify as early as one year into their Chapter 13 repayment plan. Most conventional mortgage loans, however, are unlikely to approve your application until you receive your bankruptcy discharge. They’re also likely to have a two-year waiting period after you receive your discharge from the bankruptcy court. In the next section, we outline the waiting periods to qualify for a mortgage after bankruptcy.
Waiting Periods After Chapter 13
|Status of Chapter 13 Case
|FHA loan, USDA loan, VA loan
|12 months after filing
|FHA loan, USDA loan, VA loan
|No waiting period
|FHA loan, USDA loan, VA loan
|12 months after dismissal
|Not allowed without discharge or dismissal
|Two years after discharge
|Four years after dismissal
|Dismissed, but with extenuating circumstances
|Two years after dismissal
What Mortgage Loans Can I Get After Chapter 13 Bankruptcy?
While Fannie Mae and Freddie Mac may have a strict two-year waiting period after a discharge or dismissal, other mortgage lenders are more lenient. Their decisions also depend on whether your bankruptcy case is ongoing, dismissed, or discharged. A bankruptcy discharge happens if you have completed your repayment plan and fulfilled your financial obligations. A dismissal, however, may happen if the court suspects fraud, or if there are extenuating circumstances that warrant the dismissal. If you receive a dismissal, the court has closed your case without giving you a discharge.
Dismissals can double your waiting period if you’re looking to apply for conventional loans. With a discharge, you would only need to wait two years before applying for a conventional loan. With a dismissal, however, you would need to wait four years before applying. This is true except in cases where there were extenuating circumstances that warranted the dismissal.
In the following sections, we outline the types of government-backed and conventional mortgages that you may qualify for after your Chapter 13 bankruptcy filing.
Conventional Loans After Chapter 13
When compared to FHA loans and USDA loans, conventional and conforming loans are much more difficult to qualify for after filing for bankruptcy. If you’re hoping to get a loan from Fannie Mae or Freddie Mac, you won’t be able to do so until you receive a discharge or a dismissal. With a discharge, you’ll need to wait two years before you can qualify for a conventional mortgage loan. With a dismissal, you’ll need to wait four years.
Including the time it takes to complete your repayment plan, it may take five to seven years before you can qualify for a conventional loan after a bankruptcy discharge. If your case is dismissed, you’ll wait four years after the dismissal date. Additionally, those with multiple bankruptcy filings on their credit reports will have a seven-year waiting period before they can apply.
If your bankruptcy case or dismissal was caused by extenuating circumstances, such as a job loss or a serious illness, you might have an easier time qualifying for a loan. Lenders will look at your situation to determine whether the extenuating circumstances were out of your control, whether the issues have been resolved, and whether or not those problems are likely to return.
FHA Loan After Chapter 13
FHA loans are government-backed and insured by the Federal Housing Administration (FHA). If you want to get an FHA mortgage loan, you’ll need to wait until you are at least twelve months into your Chapter 13 bankruptcy repayment plan without missing any payments. You must also receive permission from the bankruptcy court to take out a new loan while your case is ongoing.
Once you have successfully received your Chapter 13 bankruptcy discharge, there is no waiting period for FHA loans. Your application will be manually reviewed by a mortgage underwriter unless two years have passed since your discharge date. Many people prefer this loan type, as the FHA loan rules are more lenient than the rules of other loan types.
To qualify for an FHA loan, you’ll need to meet the following criteria.
- Minimum credit score of 580 with a 3.5% down payment (or a lower credit score with a higher down payment)
- You are purchasing the home as your primary residence.
- Your debt-to-income ratio does not exceed 50%.
- You currently have steady income and employment.
- You’re seeking a loan that falls within FHA loan limits.
VA Loans After Chapter 13
VA (Department of Veterans Affairs) loans are also backed by the federal government. Once you have completed your Chapter 13 filing and received your discharge from the court, you won’t need to meet any other special requirements. VA loans do not require a down payment, and they often have a low interest rate.
To qualify for a VA loan, you must meet the following criteria.
- You are at least 12 months into your Chapter 13 repayment plan, and you have made on-time monthly payments to your bankruptcy trustee.
- Your credit scores are in the fair to good range. While there is no minimum credit score, most lenders want to see a credit score between 580 and 620. So, if you have a 750 credit score, for instance, you’ll be even better off.
- You must have qualifying military service as a current service member, an eligible veteran, or a surviving spouse.
USDA Loans After Chapter 13
USDA loans are often more affordable than other loans, but they are also more difficult to qualify for. They are also backed by the federal government.
To qualify for a USDA loan, you must meet the following criteria.
- You have a good credit history. Most USDA lenders will look for a score of at least 640 or higher.
- The United States Department of Agriculture must define the area as “rural.” Although this may sound like a tall order, remember that around 97% of the entire land mass of the United States qualifies as “rural.”
- USDA loans require a household income of no more than 115% of the area’s median income. In other words, you can’t make too much money if you want to qualify for a USDA loan. This is because these loans are intended for those who have a low to moderate income.
Subprime Loans After Chapter 13
If you don’t qualify for other loans, you may be able to get mortgage financing from a subprime lender. However, this may come with a higher interest rate and down payment. Lenders of this type may accept a low credit score, but you’ll end up paying more than if you waited to qualify for a conventional loan.
Can You Apply for a Mortgage Before Your Chapter 13 Discharge?
It depends on the type of mortgage loan you’re applying for. Most conventional or conforming loans, such as those from Fannie Mae and Freddie Mac, will not allow you to apply before you receive a discharge or dismissal. After a dismissal without extenuating circumstances, you will need to wait at least four years before applying for a conventional loan.
USDA loans, however, only require you to wait 12 months after your case is completed. VA loans and FHA loans only require you to receive a discharge or dismissal. It’s important to shop around with different lenders to find the right loan for your financial situation.
How to Qualify for a Mortgage After Chapter 13 Bankruptcy
There are a few ways to increase your chances of qualifying for a mortgage after bankruptcy. Every loan type has certain minimum requirements. In general, you can become a better candidate for mortgage loans in the following ways.
- Have a steady full-time work history
- Minimum credit score of around 580
- Be able to provide proof of income with your pay stubs and tax returns
- Have a debt-to-income ratio of no more than 50%
- Plan to purchase the home as your primary residence
- Consider getting mortgage insurance to make yourself a more favorable borrower
How Can a Bankruptcy Lawyer Help Me?
At O’Bryan Law Offices, we can help you through your entire bankruptcy case from start to finish, as well as counsel you on what comes after. If you’re planning to file Chapter 13 bankruptcy in Kentucky or Indiana, and you’re worried about qualifying for a home loan, we can help. Our attorneys have extensive experience handling both Chapter 7 and Chapter 13 cases, so we know all the ins and outs of how they can affect your finances. Contact our Chapter 13 bankruptcy lawyers for more information on how to increase your chances of mortgage approval.
Contact O’Bryan Law Offices Today
If you’re considering filing for bankruptcy and you worry about how it will affect your ability to buy a home, fear not. The Kentucky bankruptcy lawyers at O’Bryan Law Offices are here to help you through your bankruptcy filing, as well as what comes after you receive your bankruptcy discharge. We take pride in educating Kentucky and southern Indiana consumers on how to improve their credit scores, how to get a home loan after bankruptcy, and much more. If you’re one of the many consumers struggling under the weight of crushing debt, filing bankruptcy may give you the financial breathing room you’ve been searching for.