Suffering a bankruptcy can seem overwhelming both financially and emotionally. However, you have more options than ever to get back on your feet, including home loan after bankruptcy programs that you may qualify for. Here are some of your top options.
Does the Federal Housing Administration (FHA) Offer Loans to Borrowers Who Have Gone Through a Bankruptcy?
The FHA is one of the most successful home loan assistance programs in the life of the United States government, and it does, in fact, offer loans to borrowers who have suffered a bankruptcy proceeding. There are hardline procedures in place, such as the waiting period for Chapter 7 and Chapter 13 bankruptcy filings. Chapter 7 filers must wait at least two years before applying for an FHA home loan; Chapter 13 filers must wait at least one year. Chapter 13 filers can actually apply for a loan while they are still paying on the loan as along as the payments are on time and documented.
Some lenders may require a longer waiting period than the FHA for a Chapter 7 bankruptcy, sometimes up to three years. There are some additional matters of procedure that must be handled, but for the most part, borrowers who are looking to get a home loan from the FHA can get one.
Does the United States Department of Veterans Affairs (VA) Offer Loans After a Bankruptcy?
The VA offers home loan packages that are comparable to the FHA after-bankruptcy loans. If your credit score is above 620 after the bankruptcy, then you are in good shape with the VA as long as you have a steady source of income and you can show a definitive good faith effort to pay back your past debts. However, if your score drops by the maximum of 240 points, you may have trouble maintaining this level. Like this FHA, you will have to undergo a waiting period of approximately two years before you can apply for a VA home loan.
Showcasing your efforts to improve your credit is an essential part of qualifying for the VA. You should bring in paperwork that shows your consistent payments to past lenders. If you can bring in a letter of recommendation for those creditors as well, then you definitely gain ground for your cause. Your goal is to get the bankruptcy discharged as soon as possible.
Can I Get a Conventional Loan After I Suffer a Bankruptcy?
A conventional mortgage, by definition, is not backed by the government. These loans must also meet certain guidelines for loan limits. However, these loans have more freedom and flexibility because of the more stringent qualification criteria. Lenders who give you conventional loans are expecting you to have a better credit score, payment record, consistent income, and lower risk profile. The punishments are a bit more stringent as well.
The waiting period for a conventional loan after a bankruptcy is usually about four years instead of the two that the FHA and the VA require. You must also show a paper trail that details the efforts that you have undertaken to rebuild your credit. However, once the waiting period is over and the due diligence has been conducted, the requirements to get back into the good graces of the bank are much less strict. The most important aspect of this agreement is a relatively low interest rate when compared to an FHA or VA loan after a bankruptcy. Although you are held to a higher standard, you regain a much better footing once you have been forgiven.
What About Fannie Mae Loans After Bankruptcy?
Fannie Mae has recently updated its requirements to compete with FHA and VA loan programs. Instead of the four year waiting period that Fannie Mae implemented before, the waiting period is now two years. The guidelines are also loosening across all types of mortgages under the program.
Other than the recent change, Fannie Mae is very similar to the FHA Back to Work Program when it comes to giving loans after a bankruptcy or other major derogatory event in the life of a borrower.
In order to give yourself the best chance for advancement after a bankruptcy, it is recommended that you compare all programs against each other thoroughly. Just because you have loans through a particular program does not mean that program is the same for your new loan. You may be able to get more leeway depending on many factors within your credit history and financial records, and individual lenders within each of the programs mentioned above all have a degree of autonomy when making financial decisions on your behalf.
Use the waiting periods after each program to build your credit. Keep all of the paperwork so that you can prove all of your efforts. Goodwill is just as important as results when you are speaking to any of these lenders about giving you a second chance with your home loan program.
2 Point Highlight
The FHA is one of the most successful home loan assistance programs in the life of the United States government, and it does, in fact, offer loans to borrowers who have suffered a bankruptcy proceeding.
If your credit score is above 620 after the bankruptcy, then you are in good shape with the VA as long as you have a steady source of income and you can show a definitive good faith effort to pay back your past debts.
