Are you concerned about getting a mortgage or taking out another type of loan after filing for bankruptcy? Here’s what you need to know.
Filing for bankruptcy resolves a variety of financial issues. Unfortunately, it isn’t all good news, though.
Bankruptcy remains on your credit report for many years after you file. It negatively impacts your credit and limits your financial freedom for a period. But even with these limits, it’s still possible to live a fulfilling life with the financial fresh start bankruptcy provides.
Can I Get a Mortgage If I Filed for Bankruptcy?
Getting a mortgage after you’ve filed for bankruptcy is challenging, but it’s not impossible. Lenders have implemented guidelines for post-bankruptcy homebuyers. As long as you complete the mandatory waiting period and meet the various eligibility requirements, borrowing money to buy a home is possible.
One of the most important considerations for those seeking a mortgage post-bankruptcy is the type of mortgage loan. Different loans have different requirements and offer different benefits. Understanding all of your loan options is an important part of securing a mortgage loan after bankruptcy.
What are Your Post-Bankruptcy Loan Options?
Conventional Mortgage Loan
Conventional mortgage loans are non-government loans. They have fixed or adjustable interest rates and terms that range from 10 to 30 years.
To receive approval for a conventional loan, you’ll need to:
- Complete the two- to four-year waiting period
- Have a minimum credit score of 620
- Make at least a 3 percent down payment
FHA Mortgage Loan
FHA loans are insured by the Federal Housing Administration (FHA). They offer more flexibility than conventional loans. They’re available for 15- to 30-year terms and have fixed or adjustable rates.
To receive approval for an FHA loan, you’ll need to:
- Complete the one- to two-year waiting period
- Have a minimum credit score of 580
- Make at least a 3.5 percent down payment
Borrowers also have the option of putting 10 percent down if they have a credit score between 500 and 579.
VA Mortgage Loan
VA loans are available to active service members, veterans, and their families. They tend to be more lenient than conventional loans, but otherwise are much the same as other mortgage loans.
To receive approval for a VA loan, all you need to do is meet the one- to two-year waiting period. There is no minimum credit score or down payment for VA loans.
- Complete the one- to two-year waiting period
- Have a minimum credit score of 580
- Make at least a 3.5 percent down payment
USDA Mortgage Loan
The US Department of Agriculture (USDA) backs USDA mortgage loans. There are income limits and loans are only available for 30-year terms.
To receive approval for a USDA loan, you’ll need to:
- Complete the one- to two-year waiting period
- Have a minimum credit score of 640 in some cases (some lenders have no requirement)
There is no down payment required for USDA loans.
NON-QM Mortgage Loan
A final option for people who have filed for bankruptcy and want a mortgage loan is a non-qualified mortgage (non-QM) loan. This isn’t a single loan but a category of loans with flexible terms. They’re risky, but for many people are the best option when they are limited.
These loans might feature balloon payments, extended loan terms of more than 30 years, or interest-only payments. There is often no waiting period. Some lenders require down payments and minimum credit scores, while others do not.
What’s the Best Mortgage Option for You?
It’s important to carefully consider the pros and cons of these types of loans. For some, the risk is worth it, but you don’t want to damage your financial situation again after cleaning it up through bankruptcy.
The most important thing to remember if you want a mortgage loan after bankruptcy is to proceed with caution. If there is no rush to act, it might be better to save money and let more time pass.
Keep in mind, you will also need court permission before entering into any type of mortgage if you are under a Chapter 13 Plan.
If you think now is the time to apply for a mortgage, carefully consider your options before moving forward. To get more information about applying for a mortgage after bankruptcy or you’d like to speak to someone about bankruptcy, contact R. Flay Cabiness, II, P.C. at (912) 417-5041 (Brunswick, GA); (912) 809-2141 (Hazlehurst, GA) or; (912) 324-3176 (Jesup, GA) to schedule a consultation.
