How does a Chapter 7 Bankruptcy impact my ability to qualify for a USDA, FHA, VA, or Conventional loan?
How soon can you qualify for a mortgage after Chapter 7 bankruptcy?
According to statistics released by the Administrative Office of the U.S. Courts, from 2015-2019 there have been over 2.5 million Chapter 7 Bankruptcies filed. However, even with a previous Chapter 7 Bankruptcy, you can still qualify for a mortgage after a specified waiting period.
Waiting periods differ between USDA, FHA, VA, and Conventional loan programs and in today’s video, I’ll compare them side by side.
Chapter 7 Bankruptcy
In many cases, a Chapter 7 bankruptcy can happen outside of the homeowner’s control such as a major illness, divorce, or death of a spouse.
A home buyer who previously filed for bankruptcy and is once again trying to qualify for a mortgage is sometimes called a Boomerang Buyer. These Boomerang Buyers are still a large and valuable portion of the home buying market.
With that being said, once a Chapter 7 Bankruptcy has been discharged, waiting periods will apply and determine how quickly you can qualify for a mortgage.
Waiting Periods for Chapter 7 Bankruptcy
Currently, the published Chapter 7 Bankruptcy qualifying guidelines for USDA, FHA, VA, and conventional are as follows:
- VA Loans are the most lenient.
- They allow for 2 years after a bankruptcy discharge.
- USDA Loans require 3 years after a bankruptcy discharge.
- However, exceptions can be possible.
- My office has successfully processed and closed the USDA waiting period exceptions.
- Conventional Loans under Fannie Mae and Freddie Mac have a 4 year waiting period for mortgage qualifying after a bankruptcy discharge.
- FHA loans have a 2 year waiting period after a bankruptcy discharge.
- Be extremely cautious when a mortgage is included in the bankruptcy.
Mortgage Included in a Chapter 7 Bankruptcy
If there was a mortgage discharged through bankruptcy, it’s vital to find out when the deed to the property actually transferred out of their name.
While FHA guidelines only have a two year waiting period after a Chapter 7 Bankruptcy, once the deed transfer actually occurs, foreclosure waiting periods will also apply based on that date – not that date of the bankruptcy discharge!
Thankfully, USDA, VA, and Fannie Mae guidelines are more lenient when a mortgage was included with a Chapter 7 Bankruptcy. They do not restart the foreclosure waiting period based on the deed transfer date.
USDA Waiting Period Exceptions
My office has been able to successfully process USDA loan exceptions after a Chapter 7 Bankruptcy. These exceptions are on a case by case scenario and based on individual circumstances.
If you are trying to qualify for a mortgage and have recently been denied due to a previous Chapter 7 Bankruptcy, please take advantage of our FREE Second Opinion Service (SOS).