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How soon can you qualify for a USDA loan after Chapter 7 Bankruptcy?

February 26th, 2021 by Sean Stephens

How soon can you qualify for a USDA loan after a Chapter 7 Bankruptcy?Per the administrative office of the U.S. Courts, there were 659,881 non-business bankruptcies filed for the 12 month period ending June 2020.

With that being said, many of those cases may not have been due to financial mismanagement, but instead due to hardships faced that may have been outside of that person’s immediate control.

Today’s video tip will shed light on how to qualify for a USDA home loan after a Chapter 7 Bankruptcy and as you will see, it may be quicker than you think!

Before we get started, don’t forget to download our FEE loan comparison chart.  This simple one-page chart breaks down the waiting periods required for mortgage qualification after a bankruptcy, foreclosure, or short sale.

Updated USDA Guidelines for qualifying after a Chapter 7:

USDA guidelines state the following regarding Chapter 7 Bankruptcy qualifying:

“Chapter 7 of Title 11 of the U.S. bankruptcy code controls the process of asset liquidation. A trustee is appointed to liquidate nonexempt assets to pay creditors. After the proceeds are exhausted, the remaining debt is discharged.”

“A Chapter 7 BK discharged or dismissed more than 36 months at the time of loan application is not considered adverse credit.

Can you qualify for a USDA loan with a Chapter 7 Bankruptcy less than 3 years ago?

As mentioned, if bankruptcy occurs three years (36 months) prior to the application date, it will be deemed to have met the USDA bankruptcy waiting period.

However, one exception to the three-year waiting period is when you obtain an ACCEPT response through the USDA Guaranteed Underwriting System (GUS).  When you are able to obtain this automated acceptance, USDA guidelines do not require an exception to the three-year waiting period and state the following:

“GUS may render an Accept underwriting recommendation for loan files that have been discharged from Chapter 7 BK less than 36 months. No credit exception is required.”

Additionally, if your file receives a GUS response of Refer, Refer with Caution, or for those manually underwritten loan files, you can still qualify for a USDA loan with less than three years after bankruptcy with an approved credit exception. USDA guidelines provide the following for these situations:

The approved lender may determine the applicant(s) is creditworthy when their Chapter 7 BK has been discharged less than 36 months. A credit exception must be documented and submitted with the loan file.”

Remember that GUS is USDA’s automated underwriting system and is available to assist approved USDA lenders such as Metroplex Mortgage Services in the loan approval process. If you are in need of a credit exception, please contact us today so we can help review your situation.

Summary

Florida USDA Approved Lender

In summary, while guidelines generally require 3 years (36 months) after a bankruptcy discharge or dismissal in order to qualify for a USDA loan, exceptions can be made for less than that period depending on the type of underwriting and the circumstances of the situation.

As an approved USDA lender, we are proud to be a resource and serve our rural communities!

Just call or email if you have any qualifying questions, want to discuss a new scenario, or would just like to take advantage of our free 2nd opinion service which is great for those existing transactions.

800-806-9836 Ext. 280
SeanS@MPLX.org

I want everyone to make it a great day, and look forward to seeing you right here for the next tip of the week!

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