Getting a Mortgage After Bankruptcy or Foreclosure

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Written by Bob Eaves - Mortgage Loan Officer, Evergreen

Experiencing bankruptcy or foreclosure doesn’t mean owning a home is out of the question - it just means you might have to wait a bit longer and take a few extra steps.

After Bankruptcy

If a person is going to declare bankruptcy, it will most likely be Chapter 7 or Chapter 13. The type of bankruptcy plays a role in how soon you’ll be able to get a mortgage. It also affects the type of loan or program you can use to finance your mortgage.

For example, with Chapter 7 bankruptcy, the waiting period begins as soon as the bankruptcy is discharged. You’ll typically wait about four years to get a conventional mortgage and two years for FHA or VA loans.

With Chapter 13 bankruptcy, you may be able to get a mortgage as soon as two years after discharge. If you’re eligible for a government loan program, like a VA loan or FHA loan, you might be able to apply for a mortgage as little as one year after filing Chapter 13 bankruptcy with a few additional requirements — which could include 12 months of on-time payments or permission from a court to assume additional debt.

After Foreclosure

Foreclosure is a little trickier than bankruptcy. Typically, you’ll have to wait around seven years from the foreclosure date for a traditional mortgage loan. Extenuating circumstances resulting from something out of your control may shorten the waiting period, but not always. You’ll also be required to make a down payment of at least 10%.

Three years after foreclosure, you may be eligible for FHA loans, and VA lenders can approve a mortgage after two years. The requirements for a VA loan are different, so depending on the lender you choose you may qualify before the two-year mark.

Government loans provide more flexibility when it comes to foreclosure. However, if the foreclosure occurred on a government loan (FHA, VA, or USDA loans), you might be hit with an automatic three-year waiting period before you can pursue another mortgage. 

After Bankruptcy and Foreclosure

When bankruptcy and foreclosure are combined, things do get a little more complicated. You might have to go through two waiting periods, although it depends on both your lender and the type of loan you’re applying for. You will likely have to wait until you are no longer legally responsible for the mortgage debt from the foreclosure. If the loan is discharged in bankruptcy, lenders may disregard the foreclosure - however, bankruptcy and foreclosure seriously damage your credit, so you may not qualify for a mortgage until you repair your credit score. 

Michigan First Mortgage has the Turning Point® loan, which is designed for people with the money to buy a home, but may have a credit history that does not allow them to qualify for a traditional mortgage. Even with bankruptcy or foreclosure, the quest for a mortgage is not hopeless - we might be able to help you. 
The bottom line? Bankruptcy and foreclosure are major obstacles to overcome, but with time and diligent work, you may be able to get another mortgage and a fresh start. Your individual situation will play a big role in your mortgage, so it’s best to speak with a qualified loan officer. Contact us at 877.312.9033 or visit MichiganFirstMortgage.com for details.

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