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Part 3 – USDA Loan Credit Requirements: USDA Loan after Chapter 7 Bankruptcy

August 19th, 2022 by Sean Stephens

How soon can you qualify for a USDA loan after a Chapter 7 Bankruptcy?How do you qualify for a USDA Loan after Chapter 7 Bankruptcy in Florida, Texas, Tennessee, and Alabama?

What are the USDA Chapter 7 Bankruptcy waiting periods?

In Part 1 of our series on USDA Loan Credit Requirements we discussed USDA credit score guidelines and additional minimum credit score that lenders may require. Then, in Part 2 we reviewed how it can be possible to increase your credit score in as little as a week!

Now, in today’s short video, we will break down how it can be possible to obtain a USDA Loan after a Chapter 7 Bankruptcy in Florida, Texas, Tennessee, and Alabama

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

USDA Loan after Chapter 7 Bankruptcy – USDA Guidelines

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 after Chapter 7 Bankruptcy less than 3 years ago?

USDA Loan after Chapter 7 Bankruptcy in Florida, Texas, Tennessee, and AlabamaAs 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

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.USDA Loan after Chapter 7 Bankruptcy in Florida, Texas, Tennessee, and Alabama

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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