Monday, January 31, 2011

Waiting Periods after a Bankruptcy

Here's how long you have to wait after a bankruptcy before you can get a mortgage.

Two Types of Bankruptcies

• Chapter 7: Debts are wiped out and no longer due. They are discharged.
• Chapter 13: Debts are “reorganized”. The court provides a payment plan to pay the debts.
–Discharged if the person sticks to the payment plan
–Dismissed if they do not stick to the payment plan

Conventional Loans

• Conventional loans are non-government loans
• Chapter 7 Bankruptcy
–4 years from the discharge date
–2 years from the discharge date with extenuating circumstances (death of a spouse, serious illness). Divorce is not an extenuating circumstance.
• Chapter 13 Bankruptcy
–2 years from the discharge date
–4 years from the dismissal date (2 years with extenuating circumstances)

FHA Loans

• Chapter 7 Bankruptcy
–2 years from the discharge date
–1 year with extenuating circumstances
• Chapter 13 Bankruptcy
–1 year of the payment period must have elapsed
–All payments must be made on time
–Need approval of the court

VA Loans

• Chapter 7 Bankruptcy
–2 years from the discharge date
–1 year with extenuating circumstances
• Chapter 13 Bankruptcy
–1 year of the payment period must have elapsed
–All payments must be made on time
–Need approval of the court

Additional Restrictions

• The borrower must have “re-established good credit”, meaning they had no late payments, collection accounts, or any other derogatory credit for the 12 months prior to the loan application
• To re-establish credit, you must use credit
• The guidelines mentioned here are ONLY for Fannie Mae, FHA, and VA. The borrower must ALSO comply with the guidelines of the individual lender and the mortgage insurance company (if the loan is a conventional loan)

Want to watch our video of this tip? Check it out on our web site by clicking here.

Want to make sure your loan closes? Call the Mortgage Experts at 303-345-3683.

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