Many people are able to get a mortgage after filing Chapter 7 bankruptcy. Lenders have their own requirements and waiting periods but buying a home after bankruptcy is possible. The real question here is: When will you be able to qualify for a mortgage? This will vary based on the type of loan you pursue. Many Chapter 7 filers become eligible for a home loan 1–4 years after they receive their bankruptcy discharge, depending on the type of mortgage they apply for.
Written by Attorney Eva Bacevice.
Updated August 24, 2023
How Long After I File Bankruptcy Can I Apply for a Mortgage?
Mortgage lenders are usually still willing to take a chance on you after a bankruptcy, but they do want some assurance that you will be able to maintain the payments. This is why lenders often require a waiting period of 1–4 years after a Chapter 7 bankruptcy discharge. This time gives you the chance to rebuild your credit score and show that you have the ability to take on and maintain mortgage payments.
It’s important to note that your waiting period starts to run from the discharge date, not your original filing date. You may be subject to a longer waiting period if you have filed multiple bankruptcies or have a foreclosure on your record. (More on how foreclosures affect waiting periods below.)
Waiting Periods by Home Loan Type
Here’s a quick look at typical waiting periods by loan type:
Federal Housing Administration (FHA) Loan: 2 years
USDA Home Loan: 3 years
Veterans Affairs (VA) Loan: 2 years
Conventional Home Loan: 2–4 years
FHA Loan Waiting Period: 2 Years
The waiting period for a Federal Housing Administration (FHA) loan is two years after your bankruptcy discharge date. If, however, you are able to prove there were extenuating circumstances that led to a home foreclosure or bankruptcy, you may qualify for a 12-month exception.
Extenuating circumstances are situations that were beyond your control and not related to financial mismanagement, such as the death of a spouse, a natural catastrophe, or a severe medical issue.
What is a Federal Housing Authority (FHA) Loan?
An FHA loan is a government-backed loan. FHA loans are a good fit for first-time homebuyers and those with a low credit history who could have a hard time getting a conventional loan. Since the government guarantees the loan, the lender has protection if the borrower defaults on the loan. FHA loans have more relaxed credit score requirements and lower down payments than conventional loans.
United States Department of Agriculture (USDA) Loan Waiting Period: 3 Years
The waiting period for USDA loans is three years after your Chapter 7 discharge. Like the FHA loan, if you are able to prove extenuating circumstances you could qualify for the 12-month exception.
What is a USDA Loan?
USDA loans exist for borrowers who are interested in purchasing a home in a rural community. This type of loan offers low interest rates as well as a no down-payment option.
Veterans Affairs (VA) Loan Waiting Period: 2 Years
The waiting period for VA loans is two years after your bankruptcy discharge so long as your credit is clean for that period. If you’re a veteran, you can learn more about your mortgage options in this article: 5 Mortgage Assistance Programs Every Veteran Should Know About.
What is a VA Loan?
The Department of Veteran Affairs provides VA home loans as a benefit to veterans. VA loans usually don’t require a down payment, and there’s no minimum credit score requirement.
Conventional Loan Waiting Period: 2–4 Years
The waiting period for conventional loans can vary from two to four years. Again, if you experienced extenuating circumstances, the lender may reduce the waiting period.
The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) define extenuating circumstances as, "nonrecurring events that are beyond the borrower's control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations."
However, the waiting period can be longer if you’ve filed multiple bankruptcy cases. In that case, you’ll need to wait five years from the most recent discharge (though extenuating circumstances can reduce this to three years.)
What is a conventional loan?
Private loans made by banks and mortgage companies without government backing are called conventional loans. Most of these loans are sold to either the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).
Fannie Mae or Freddie Mac home loans require borrowers to:
Make a down payment
Have Private Mortgage Insurance until the property equity equals 20% of the initial loan amount
Have a higher credit score than government-backed loans
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How Does Foreclosure Affect My Waiting Period?
If your home was foreclosed on as part of your bankruptcy, you will likely face a longer than normal waiting period.
In this case, the FHA loan waiting period increases to 3 years and conventional loans increases to 7 years. Foreclosures don’t affect the waiting periods for VA home loans and USDA loans.
Again, if you can prove there were extenuating circumstances that led to the foreclosure, you may be able to decrease the waiting period.
What Can I Do During the Waiting Period After I File Bankruptcy?
There are many steps you can take to build good credit and shore up your finances after your bankruptcy discharge. These steps include:
Rebuilding Your Credit: You can do this by making on-time payments on existing loans and credit cards. You should also frequently monitor your credit report.
Build Up Your Savings: The more you put away, the less you will need to borrow for your mortgage loan.
Look Into Pre-Qualifying for a Mortgage Loan: This pre-approval process will tell you what purchase price range to look for and will give you an idea of what your monthly payment will be.
Is It Hard To Get New Credit After Bankruptcy?
It’s actually a lot easier than most people think to get new credit after bankruptcy.
Once you receive a Chapter 7 discharge, all of the old unsecured debt is gone and so you have increased your ability to pay off any new debts. You do, of course, want to be mindful of your financial situation and make sure your monthly income is sufficient before taking on any new debt.
Need Help Navigating the Bankruptcy Process?
You can achieve home-ownership post-bankruptcy, but it will take time and effort. If you want more information about whether bankruptcy is a good option for your financial situation, we can refer you to an experienced attorney for a free consultation. You can also find articles in our Learning Center to learn more about Chapter 7 and Chapter 13 bankruptcy filing.
If you decide to file, you can use Upsolve’s free filing tool to file Chapter 7 bankruptcy free of charge!