Purchasing a Home after Bankruptcy
Various government programs are available to assist individuals in purchasing real estate. Naturally, wherever there is government, there are rules—many rules. But on a positive note, a history of bankruptcy is not a death blow to home ownership. Below are general guidelines for purchasing a home after bankruptcy.
2013 FHA Guidelines –You may apply for a FHA insured loan as early as one (1) year after bankruptcy if you experienced an economic hardship that caused more than a 20% drop in household income. Otherwise, you must wait two (2) years after a Chapter 7 bankruptcy discharge and one (1) year after a Chapter 13 bankruptcy has been discharged or dismissed. The minimum down payment is 3.5% and credit must be re-established with a 640 minimum credit score.
A Chapter 13 debtor who has made twelve (12) timely payments on a confirmed plan can qualify for a FHA loan if there are no other credit delinquencies and if they receive bankruptcy court permission.
2013 VA Guidelines – The VA Lender Handbook spells out guidelines for a veteran to qualify between one (1) and two (2) years after a bankruptcy discharge:
- The borrower and/or co-borrower must reestablish satisfactory credit, and
- The bankruptcy must have been caused by circumstances beyond the borrower or co-borrower’s control (such as unemployment, medical bills, etc.)
If you have finished making all payments in a Chapter 13 bankruptcy case, the lender may conclude that you have reestablished satisfactory credit. If you have satisfactorily made at least 12 months worth of the payments and the Trustee or the Bankruptcy Judge approves of the new credit, the lender may give favorable consideration. In this situation 100% financing is available and credit must be re-established with a minimum 620 credit score
2013 USDA Guidelines – You may apply for a USDA rural loan three (3) years after the discharge of a Chapter 7, or one (1) year after a Chapter 13 bankruptcy (with evidence of twelve months of timely plan payments). In this case 100% financing is available. The USDA does not enforce a credit score minimum, but generally at least a 640-660 score is required.
2013 Conventional (Fannie Mae) – You may apply for a Conventional Fannie Mae loan after your Chapter 7 bankruptcy has been discharged or dismissed for four (4) years, two (2) years from the discharge of a Chapter 13. A two (2) year waiting period for Chapter 7 debtors is allowed if certain “extenuating circumstances” can be documented. The time is extended to sixty (60) months if there are multiple bankruptcies within the last seven (7) yrs. There is a minimum down payment is 5% and credit must be re-established with a minimum 680 credit score.
2013 Conventional (Fannie Mac) – This loan guarantee generally requires a borrower to wait eighty-four (84) months (that’s 7 years!) after bankruptcy unless either “extenuating circumstances” are met (then the waiting period is 24 months) or when “financial mismanagement” is present (then the waiting period is 48 months). The minimum down payment is 5% and a 680 credit score with a perfect rental history are required.
2013 Jumbo Mortgage Guidelines – You may apply for a Jumbo mortgage loan once any chapter of bankruptcy has been discharged for four (4) years. That waiting period is extended to five (5) years if multiple bankruptcies are present on the credit profile.