How Soon Can I Buy a Home After A Bankruptcy Chapter 7 or Chapter 13?

By George Raymondo

This is a common question I get on a weekly basis. Bouncing back from a Bankruptcy is a process and can take time, but it doesn’t have to be deal killer. Most people think it will be nearly impossible to qualify for a home loan after a discharge but that’s not the case. It depends on whether you filed a Chapter 7 or Chapter 13. The type of bankruptcy you filed will certainly influence when you will eligible to purchase a home. When, in lending terms, translates to “seasoning requirements or waiting period”.

Let’s start with a Chapter 7 Bankruptcy. The waiting period begins once the case is discharged. The waiting period depends on what loan program you want to qualify for. There are 4 major categories of residential home loans. The first category are referred to as Agency Loans, such as FHA, VA, and USDA Rural Development. These loans are privately funded but are government insured. Both FHA and VA carry a 2-year waiting period from the discharge date while the USDA requires 3 years. The second category of loans are called Conventional and they carry a 4-year waiting period. The third category are referred to as Portfolio Products and the waiting period are as soon 1 day after the discharge. The last category of home loans are referred to as Hard Money or Private Money and these vary from Investor to Investor. Please note that under certain “Extenuating Circumstances”, waiting periods can be reduced to as short as 1-year. Contact me for more details.

With Chapter 13 Bankruptcies, there is no waiting period for an FHA, VA or USDA. While you will find some lenders do require a 1 year wait, that is a lender overlay, but not an agency guideline.  The beauty of a Chapter 13 is that borrowers can be eligible for an Agency loan with merely 12 months of on time payments to the Trustee and permission from the court to incur the new debt. If a borrower has been 30 days or more late on any payment, the clock starts over and will need to wait another 12 months from the last late payment. With Conventional loans, the seasoning requirement is 2 years from the discharge and Portfolio Loan products, the wait can vary. 

If a consumer has had a Bankruptcy and Foreclosure, that can add an extra layer of complication to the home loan process. One common problem is that homeowners file bankruptcy only to see their home not foreclose several months later. In some cases, up to several years after their discharge date.  The seasoning or waiting periods vary depending on loan type.  For FHA, VA and USDA, you will be bound to the last occurrence, which is generally the foreclosure. The seasoning requirement for VA loans is 2 years from the foreclosure date, and 3 years for FHA and USDA irrespective of the final discharge date. There is a life line for borrowers applying for Conventional Loans. The guidelines have been recent changed so if the borrower’s mortgage was discharged in the bankruptcy, lenders can now disregard the subsequent foreclose or short sale, so the borrower is not double dinged. 

A bankruptcy, short sale or foreclosure certainly can complicate the home loan process, but it is not a deal breaker. If you have any questions or need assistance, please feel free to Contact Me.