How to Qualify for a Mortgage After Chapter 7 Bankruptcy 

Chapter 7 bankruptcy (often just called “Chapter 7” or “liquidation bankruptcy”) is a legal way to eliminate most of your debts, including auto loans and even your existing mortgage. Once you’ve eliminated your debts through liquidation bankruptcy, you’ll be able to rebuild your credit and even obtain another mortgage loan relatively quickly. Read on to find out about qualifying for a mortgage after Chapter 7 bankruptcy west palm beach fl.

Waiting Periods

Most lenders follow bankruptcy waiting period requirements issued by Fannie Mae and Freddie Mac. Those two giant government-sponsored entities or GSEs annually buy up many thousands of mortgage loans made by lenders. The Federal Housing Administration also has post-bankruptcy waiting period requirements for mortgages it insures, as does the Veterans Administration for mortgage loans it guarantees. Here are some post-Chapter 7 bankruptcy waiting periods:

  • For Fannie Mae and Freddie Mac mortgage loans, there’s a four-year post-Chapter 7 bankruptcy waiting period from the time of debt discharge or bankruptcy filing dismissal.
  • A two-year waiting period from debt discharge or bankruptcy case dismissal is required for FHA-insured and VA-guaranteed mortgage loans.
  • It’s possible to obtain a mortgage loan almost immediately after Chapter 7, but that’s very rare.
  • Expect at least a two-year minimum waiting period, post-Chapter 7, before you can qualify for a mortgage loan.

Rebuild Your Credit

The most important thing you can do post-Chapter 7 bankruptcy is to rebuild your credit because you’ll need an excellent history once you apply for another mortgage loan. Bankruptcy will, of course, eliminate your debts. Still, it doesn’t do the same for your credit history, where a bankruptcy entry on it could remain for up to 10 years. Also, a Chapter 7 filing and debt discharge could reduce your credit score by anywhere from 75 to 150 points or even more. Steps to quickly rebuilding credit post-Chapter 7 include:

  • Pay all your bills, including utilities, on time.
  • Secured credit cards can help rebuild credit after a bankruptcy. Obtain one or two secured credit cards and then use them wisely.
  • Gas or department store-type credit cards also help rebuild credit. Plus, they may be easier to obtain immediately after your bankruptcy than major credit cards.

Payments, Bank Statements

These days, mortgage lenders also require a verifiable record of on-time payments. If you want to qualify for a mortgage loan after your bankruptcy filing and debt discharge, prepare to show 12 consecutive months of on-time payments. Mortgage loan underwriters also usually require 12 months’ worth of banking statements from applicants before they’ll consider approving a loan.

Getting a Loan

Before 2008, when the housing market collapsed, it was effortless to obtain a mortgage loan almost immediately after a Chapter 7 bankruptcy. Today, however, it can be more challenging to get a mortgage loan after bankruptcy if you don’t pay attention to your credit and don’t pay your bills on time. Suppose, though, that you work conscientiously to rebuild your post-Chapter 7 bankruptcy credit. In that case, you should be able to obtain a mortgage loan with a reasonable interest rate and a relatively low down payment. 

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